Experts Cite 10 Consumer Misperceptions That Can Hinder a Comfortable Retirement

Windsor, CT, May 24, 2005 – A secure and worry-free retirement is a cherished dream for millions of Americans but a new report cites 10 ways in which consumers lack a realistic understanding of what they need to do to achieve that dream.

The 10 retirement misperceptions are the focus of a report from LIMRA International, the Society of Actuaries and Matthew Greenwald & Associates. The research was sponsored by the Society of Actuaries Committee on Post-Retirement Needs and Risks.

“Unfortunately, many workers and retirees have an incomplete or misleading picture of how much they need to save, how to invest such savings effectively and how to make their money last a lifetime,” said Anna Rappaport, chair of the committee. “Clearing up such misperceptions will be essential for people to fulfill their dreams of a comfortable retirement.”

The conclusions are based on an analysis of extensive data from studies by LIMRA, Greenwald, the SOA and other sources.

“Our intention is to give interested parties a far more complete picture than they could get from any of the studies individually,” said Rappaport. “We hope the paper highlights gaps in knowledge and lays the foundation for education programs and other measures.”

The 10 retirement misperceptions cited in the report include:

  • Saving too little. Most people have not tried to estimate how much money they will need for retirement. Moreover, those who have calculated this amount often underestimate it.

  • Not knowing when retirement will occur. Many workers will retire before they expect to, and before they’re ready.

  • Living longer than planned. As individuals learn to manage their own retirement funds, they may not understand that life expectancy is a very limited planning tool. In fact, some retirees will live long beyond their life expectancy, with a substantial risk of outliving their savings.

  • Not facing facts about long-term care. Many people underestimate their chances of needing long-term care. Relatively few people either own long-term care insurance or can afford to pay for extended long-term care themselves.

  • Failing to ensure guaranteed lifetime income. Although people find guaranteed lifetime income attractive, in practice they usually will choose to receive retirement plan benefits in lump-sum form. They pass up opportunities to get a lifetime pension or annuity, failing to recognize the difficulty of creating lifetime income streams on their own.

  • Not understanding investments. Due to the growth of workplace retirement savings plans, workers are now responsible for managing investments for retirement. However, many workers misunderstand investment returns and how investment vehicles work.

  • Relying on poor advice. A significant portion of retirees and pre-retirees do not seek the help of a “qualified professional.” Yet they indicate a strong desire to work with a financial professional.

  • Not knowing sources of retirement income. Workers misunderstand what their primary sources of income will be in retirement, and may be disappointed when trying to live on the income that’s available.

  • Failing to deal with inflation. Inflation is a fact of life that workers usually deal with through pay increases. But after retirement, few people can increase their income to keep pace with the cost of living.

  • Not providing for a surviving spouse. Many married couples fail to plan for the eventual death of one spouse before the other. This can have serious consequences, especially when the survivor is the wife.

About LIMRA International

LIMRA International is a worldwide association providing research, consulting and other services to more than 800 insurance and financial services companies in 60 countries. LIMRA was established in 1916 to help its member companies maximize their marketing and distribution effectiveness.

About the Society of Actuaries

The Society of Actuaries is an educational, research and professional organization dedicated to serving the public and Society’s 17,000 members. The Society’s vision is for actuaries – business professionals who analyze the financial consequence of risk – to be recognized as the leading professionals in the modeling and management of financial risk and contingent events. The Society’s mission is to advance actuarial knowledge and to enhance the ability of actuaries to provide expert advice and relevant solutions for financial, business and societal problems involving uncertain future events.