5 lessons from IRI’s third annual Boomer Retirement Preparedness study

By Cathy Weatherford

Insured Retirement Institute (IRI)

These findings highlight the changing retirement model in the United States and the emerging retirement income challenges that have come as a result.

You’ve heard it time and time again, but the baby boomer generation continues to redefine all walks of life, and as 79 million of them retire by 2030, they will do the same for retirement. In their wake will be a new retirement model in which Americans will be more self-responsible for their financial security. To help forecast and understand these changes, each year since 2011, the Insured Retirement Institute (IRI) conducts a survey to measure boomers’ retirement expectations. Having recently released the third edition of this annual report, IRI observed a number of trends — some frightening, one reassuring and others simply telling — that provide lessons to the insured retirement industry.

1. Boomer confidence in their retirement plans is dropping.

Boomers’ confidence in preparing financially for retirement declined seven percentage points from 44 percent in 2011 to 37 percent in 2013, according to the IRI study. The cost of health care ranks among boomers’ many financial concerns. Boomers’ confidence in covering medical expenses during retirement declined three percentage points to 34 percent during the past year. In total, boomers are steadily losing confidence that they will have enough money to live comfortably throughout their retirement years, with confidence declining three percentage points since to 2011 to a meager 34 percent in 2013.

2. Working with an advisor can improve boomer confidence.

Each annual edition of IRI’s study shows that working with an advisor provides a significant boost in boomer confidence regarding their financial preparations for retirement. In the 2013 report, 48 percent of boomers who work with an advisor were extremely or very confident with their financial preparations for retirement, compared with 28 percent who do not work with an advisor. Boomers who work with an advisor also are better prepared for retirement by a number of other measures. Boomers who work with an advisor are more likely to have retirement savings — 94 percent compared to 64 percent who do not work with an advisor — and to have determined a retirement savings goal — 71 percent compared to 34 percent.
3. More boomers plan to work in retirement.

Each year, IRI gauges a key indicator of retirement preparedness: boomers’ sources of retirement income. As additional evidence of boomers’ declining confidence in their retirement plans, in 2013, 79 percent of working boomers stated employment in retirement will be a source of income. That is an increase of 12 percentage points from the 2011 survey. Unfortunately, working boomers’ expectation to work during retirement may not be realistic. Only 45 percent of retirees stated that work is a source of retirement income in the 2013 study. An unstable job market, unforeseen health issues and other factors may prevent boomers from working in their retirement. When financially planning for the future, boomers need to be aware that they may not be able to work in retirement even if they want to and should focus on saving more and identifying alternative sources of retirement income.

4. Boomers plan on retiring at later ages.

Among boomers who have decided on an age to retire, the trend over the past three years has been to plan on retiring at later ages. In 2011, 11 percent of boomers stated they were planning on retiring at age 70 or later. By 2013, this increased to 18 percent. This and other data from IRI’s research suggest that as working boomers near retirement age, they realize their savings are insufficient to maintain the quality of life they hoped for in retirement. Among boomers who are uncertain about when they plan to retire, the most common reason is insufficient savings, underscoring that boomers are opting to stay in the workforce longer because they feel financially unprepared for retirement.

5. The shift to defined contribution plans hurts retirement confidence.

Retired boomers have higher levels of confidence in meeting their financial needs in retirement — 46 percent versus 32 percent of working boomers. This is attributed, in part, to different retirement income sources for retired boomers compared to working boomers, who will more likely need alternative sources of lifetime income. In the 2013 study, 48 percent of retired boomers state a traditional defined benefit pension plan is a major source of income in retirement, and 34 percent state a defined contribution plan is a major source.

These figures are reversed among working boomers — 38 percent of whom expect a traditional pension to be a major source of income in retirement, and 45 percent expect a defined contribution plan will be a major source. These findings highlight the changing retirement model in the United States and the emerging retirement income challenges that have come as a result. As such, we anticipate that boomers and generations to follow will be more responsible for accumulating, managing and drawing down retirement assets, ultimately becoming more self-responsible for their financial security in retirement.