In sobering information
recently presented by the AARP, studies show that nearly half of all Americans
will die with practically no money at all.
What’s more, this holds
true even for those who have met the traditional standards for retirement
security. A challenging economy and changes in employer retirement programs
have made it very difficult for retirement assets to last, especially with
longer life expectancies.
According to studies AARP expert Debra
Whitman presented at a Financial Security Summit organized by the
Aspen Institute, Americans ages 75 and older lost one-third of their
household financial assets and one-sixth of their net worth from 2007 to
2010, a result of the 2008 market crash. Even with
improved market conditions, for many it may be too late to make up lost ground.
"The oldest old are suffering a great deal now," said Whitman.
Those 75-plus are
hardest hit. Although most age groups have paid down credit card debt significantly,
balances among the oldest retirees has risen. According to the AARP, between 2007 and 2010,
the percentage of households 75 and older with credit card balances rose from
18.8% to 21.7%. In contrast, credit card balances fell in every other age
group.
In a study led by economist James
Poterba of MIT, together with research from Dartmouth and Harvard's
Kennedy School, it was estimated that about 46% of Americans die with less than
$10,000 in assets. As a result, many lack even home equity and rely almost
entirely on Social Security for income.
Interest Rate Woes
The drain on retirement
assets from the economic downturn has also been fueled by the long period of
low interest rates that has followed, partially as a result of government
efforts to jump-start the recovery. Because retirees' funds tend to be heavily
invested in fixed-rate assets such as bonds, low rates eat those funds' value.
A general rule of thumb states
that retirement assets can be made to last 30 years if one withdraws 4% of their
original value every year. The formula may not work when inflation-adjusted
interest rates remain close to zero over long periods, or when the nest egg has
been slashed by a third.
Social Security
Another significant
factor affecting older retirees is their reliance in Social Security income. AARP's analysis of census data shows that about
one-third of retirees ages 65 to 69 rely on Social Security for more than half
their annual income, but the figure rises to more
than 60% of those ages 80 and older.
Additionally, those 75 and older are also in
disproportionately poor health, partly because of a lack of assets to cover medical
expenses beyond Medicare. More noteworthy, it was found that many of these
households had entered retirement in what was considered good financial shape.
Increased longevity along with the economy has wreaked havoc with spending plans.
Social Security income, as a rule does not provide an adequate income stream to
make up the difference needed for medical care.