Retirement Woes May Be Exaggerated

New study finds that most Americans will be able to meet their needs in their retirement years.

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Study after study has found that Americans save too little for retirement, make bad investment choices, and underestimate retirement expenses for healthcare and other items. However, two economists and aging experts at the Rand Corp. say a detailed review of the actual financial resources and spending practices of people age 66 to 69 produces a more optimistic portrait.

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"Our main finding is that a substantial majority, about 71 percent of those just past the usual retirement age, are adequately prepared for retirement," said Michael D. Hurd and Susann Rohwedder in their study "Economic Preparation for Retirement." Hurd is director of the Center for the Study of Aging at Rand, a nonprofit research firm based in Santa Monica, Calif. Rohwedder is associate director of the center.

Many retirees have been affected by financial reversals caused by the recession. But Hurd said the impacts of declining investment and real estate values are limited to a relatively small number of Americans. "When we adjust for stock and housing price changes, we find little difference in outcomes" for retirement, he said in an email about the study.

Being adequately prepared for retirement, the study said, means recent retirees will be able to maintain their current levels of consumption—adjusted for age-related changes as they get older—and will likely still have money left over when they die.

Other widely cited research has contrary conclusions, they note. In large part, that's because those studies peg retirement adequacy to a person's ability to maintain their pre-retirement standard of living during retirement. Some studies also assume that retirement adequacy depends on constant levels of spending as people get older.

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Hurd and Rohwedder say their review of actual retiree behavior shows that people consistently adjust their spending downward as they age. Their research factors in natural household-spending declines when one spouse dies. They also consider the retirements of some low-wealth households as adequate. That's because statistics show that many members of such households might be on a trajectory to spend down their wealth but are likely to die at relatively young ages before running out of money.

"We do not find inadequate preparation for retirement on average," their study concluded. "This is not true, however, for all groups in the population. In particular, many singles who lack a high school education are not well prepared: even were they to reduce initial consumption by 10 percent, about 64 percent would still face a probability of running out of wealth greater than 5 percent."

"Economic preparation by couples is much better than preparation by singles," the study added. "Nonetheless, there is substantial variation by education, with some 89 percent of college graduates being prepared compared with 70 percent among those lacking a high school education."

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The Rand findings are supported in part by other evidence of how Americans have coped with financial problems brought on by the economic downturn and weak recovery. Gallup regularly polls Americans on 13 aspects of their health and financial condition as part of the Gallup-Healthways Well-Being Index.

The most recent findings are that many people still are struggling, particularly with access to healthcare. Gallup said that nearly five million fewer Americans have access to the basic necessities of life than in November of 2008, when the recession's impact on household budgets was in its early stage.

The largest drops in meeting basic needs since 2008 have occurred in having health insurance, a personal doctor, and visiting a dentist. Smaller declines occurred in having enough money to buy food at all times during the past year, funds for adequate housing, and easy access to a safe place to exercise.

Values of the other seven measures have increased since 2008, led by easy access to affordable fresh fruits and vegetables. People noted smaller improvements in feeling safe walking alone at night, viewing their city or town as becoming a better place to live, easy access to clean and safe water, ease of getting medicines, having enough money to pay for healthcare and medicines, and being satisfied with the area where they live.

Twitter: @PhilMoeller