Retirement: Why You're Probably Not Prepared For It

If you are already paranoid about your retirement prospects, you’re not going to like hearing the latest findings from the National Retirement Risk Index.


About 64 percent of Americans are at risk for not being financially prepared to maintain their standard of living in retirement, according to a study conducted by the Center for Retirement Research at Boston College and underwritten by Nationwide.

The index, which is issued twice a year, was just adjusted to include consideration of long-term care costs on retirement savings.

Factoring in the cost of long-term care, which has been on the rise, is another step toward making the survey a more comprehensive picture of retirement expenses. In February 2008, the group added health care costs into the mix and the number of people whose retirement was at risk jumped to 61 percent from 44 percent.

Paul Ballew, senior vice president of Customer Insight and Analytics at Nationwide, warns that Americans are heading into uncharted territory. More and more Americans are funding their own retirement through 401(k)s and other savings rather than through employer-sponsored pensions. Even for those who have pensions, the financial security of those plans has been in question.

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“The level of savings and investment have all been inadequate,” Ballew said. With more Baby Boomers preparing to retire, retirement preparedness is a huge challenge, according to Ballew.

The NRRI study also sheds light on why more older workers are putting off retirement and some retirees are re-entering the workforce.

According to the AARP Public Policy Institute, the average retirement age—which has been between 62 and 63 for men and women— rose last year. For example, the percentage of 63-year-old men who were in the work force rose from 44 percent in 2000 to 51 percent in 2007, according to the Institute.

Meanwhile, more people over the 65 years of age are searching for work. The unemployment rate for workers 65 and over shot up to 6.8 percent, the highest reported for the group since 1970s.

Obviously, the recent erosion of household net worth is contributing to these trends. Household net worth fell by 9 percent over the last three months of 2008. It was the biggest quarterly decline since record keeping began in 1951.

Ballew stresses that more people need to be proactive about their retirement planning and consult a financial advisor early in the process.

“Only 20 percent of people have a financial adviser,” Ballew said. He said he thinks this percentage is far too low when eight out of every 10 people will be using their own investments to keep up their standard of living in retirement.

Most people incorrectly assume that they need a six-figure income or higher to use a financial advisor, he said.

One trend that could put more people at risk for not saving enough for their retirement is a recent shift toward more conservative investments.

"You can't fault them for doing that," Ballew said. But Ballew warns this approach is short-sighted, and again reinforces why people should be discussing their financial plans with professionals.

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