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FYI: Retirement

Thursday, December 1, 2011
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What People Don't Know About Retirement

Recent findings from the 2011 MetLife Retirement Income IQ survey, conducted by the MetLife Mature Market Institute in Westport, Conn., shows Americans have quite a way to go to learn what they need for a financially secure retirement.

Of the 1,213 pre-retirees ages 56 to 65 who took the quiz, the majority answered only five of the 15 questions correctly, indicating persistent misperception and misunderstanding in a number of core areas, such as life expectancy, inflation, retirement income/savings, long-term care insurance and, to some extent, Social Security.

In the 2008 version of the study, most respondents correctly answered six of the 15 questions. The 2011 study also asked a number of questions related to additional aspects of Americans' post-retirement income needs.

According to the report, only 45 percent knew that experts believe retirees will need 80 percent to 90 percent of their pre-retirement income to maintain their current standard of living.

Nearly three in 10 (29 percent) respondents incorrectly believe that retirees should limit the percent they withdraw from their savings each year to between 7 percent and 10 percent, and 11 percent believe they should plan to withdraw between 11 percent and 15 percent.

In reality, experts recommend limiting the percent retirees withdraw from their savings each year to between 4 percent and 6 percent.

"Everyone knows they're likely to live longer, but most don't realize that can mean living past age 85 and they fail to calculate how much money they will need for a steady and lasting income," says Sandra Timmermann, director of the MetLife Mature Market Institute.

Canadians Retiring Later, Too

The trend of workers retiring later in their careers is apparently a phenomenon that has crossed over our border with the Great White North: A 50-year-old Canadian worker in 2008 could expect to stay in the labor force 3.5 years longer than in the mid-1990s, according to Statistics Canada.

Statistics Canada, which is a member of the United Nations Statistical Commission, used Labor Force Survey data to estimate the number of years a 50-year-old worker can expect to work before retiring, if retirement rates of a given year prevail. Expected working life is estimated using a method similar to that used for calculating life expectancy.

According to Statistics Canada, older workers have been increasingly delaying their retirement since the mid-1990s. This is consistent with the increase in the employment rate of older Canadians that began about the same time.

In 2008, according to this measure, an employed 50-year-old had an expected additional 16 years at work. This is roughly 3.5 years longer than workers of the same age in the mid-1990s who could expect to work 12.5 more years. The 3.5-year increase was the same for both men and women.

"During the 1980s and early 1990s, there was a marked trend toward early retirement prompted by high public-sector deficits and downsizing among private-sector organizations," the report states. "However, since the mid-1990s, the tide appears to have turned."

Meet the 'Future Early Retirees'

New research by the Transamerica Center for Retirement Studies, based in Los Angeles, finds that one in five (21 percent) American workers expect to retire before age 65.

According to the results of the 12th Annual Transamerica Retirement Survey, which was conducted among 4,080 American workers by the nonprofit center, slightly more than half (52 percent) of future early retirees have a college degree, half (50 percent) are under the age of 40 and nearly half (49 percent) report an annual household income of less than $100,000 per year.

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As different as they may be within the demographic, the common denominator with these future early retirees is that the majority exhibit highly proactive savings behaviors, says Catherine Collinson, president of the Center.

"Future early retirees are not necessarily born out of privilege or ultra-affluence," she says. "They are more likely to be everyday people and should be considered a source of inspiration to all."

The report finds that future early retirees are likely to have a retirement strategy (71 percent), start saving for retirement at a younger age (median age of 25) and be offered a 401(k) or similar plan by their employer (75 percent). They also defer a high percentage of their annual salary into their 401(k) or similar plan (median of 10 percent).

Additionally, these workers are likely to save for retirement outside of work (69 percent) and be very involved in managing and monitoring their retirement accounts (71 percent).

"Despite the down economy, most future early retirees have found a way to save the same or more since the recession began," says Collinson.

Regional Retirement-Plan Participation

Both wage-earning and salaried workers in the South and West had the lowest participation levels in employment-based retirement plans, with Florida holding the lowest percentage, at 43.7 percent, according to new issue brief by the Washington-based Employee Benefit Research Institute.

The levels of participation by workers in public- and private-sector employment-based pension or retirement plans is based on the U.S. Census Bureau's March 2011 Current Population Survey, which is the most recent data currently available for year-end 2010.

The upper Midwest, Mid-Atlantic and Northeast regions had the highest overall levels of participation, with West Virginia holding the highest participation level, at 64.2 percent.

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