Baby Boomers Fear Retirement Years

Retirement savers worry that they will encounter unexpected expenses and end up in poverty.

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Retirees and workers on the verge of retirement have many concerns about their continued financial security. Baby boomers and seniors don’t know what expenses they may incur in retirement and are concerned that they will end up in poverty if they spend down their savings too quickly. But they also feel that they don’t know enough about investing to protect themselves and that the financial services industry isn’t looking out for their best interests, according to a recent Financial Engines report based on 300 interviews with near-retirees and retirees between March 2008 and February 2011. Here’s a look at some of the baby boomer’s biggest retirement fears.

[See 10 Essential Sources of Retirement Income.]

Financial shocks in the future. Retirement is full of uncertainties including how long you will live, how your investments will perform, whether your home will gain or lose value, and how long you will be able to work. Workers simply don’t know if they will get sick, need long-term care, and how they will pay for the out-of-pocket costs if they require ongoing medical treatment. Over half of the workers and retirees interviewed expressed uncertain emotions about the future. Some individuals were paralyzed by the uncertainty and took no action in order to avoid making incorrect decisions. This inertia caused some retirees to choose conservative investments to avoid getting locked into something and not having access to their money, while others avoided spending their 401(k) savings entirely so that the money will be there if they need it.

Poverty in old age. No one knows how long they will live, so it’s difficult to know how much you can safely spend each year in retirement without running out of money. Nearly half of the survey participants expressed fear of spending all of their savings and having to live in poverty in retirement. Some retirees also fear being a financial burden on their children. Participants with less savings were more likely to express a fear of poverty than those with higher balances, but all income levels had this fear to some extent. Some 58 percent of survey respondents with $100,000 or less in savings were nervous about outliving their money, but so were 36 percent of people with $500,000 or more. To cope with this fear, some workers and retirees avoid thinking about retirement altogether, while others maintain an ungrounded optimism that things will work themselves out or they will just keep working until they die.

[See 5 Characteristics of a Good 401(k) Plan.]

Don’t know enough about investing. Baby boomers and seniors need to make a variety of retirement and investment decisions, often without having been properly educated or informed about the topic. Over a third of the retirement savers interviewed don’t feel confident about their financial knowledge or ability to make investment decisions. Many of the survey respondents don’t feel comfortable with their ability to generate retirement income and expressed confusion about the various components of their retirement plan including a pension, 401(k), Social Security, and Medicare. Many individuals feel overwhelmed by the importance and technical nature of the retirement and investment decisions they are required to make and say they don’t even know where to begin.

[See How to Cope With a Forced Retirement.]

The financial services industry will rip you off. Many retirement savers (46 percent) are distrustful of the financial services industry, Financial Engines found. Newsworthy financial scandals and personal negative experiences with financial brokers or advisers have left many baby boomers and seniors skeptical about the motivations of the entire financial services and insurance industries. Retirement savers often turn to a friend or family member for retirement advice because they do not trust financial institutions to look out for their best interests and are wary of hidden fees.

Twitter: @aiming2retire