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Retirement Risks

Anna Rappaport, the noted futurist and actuary, discusses in a Q&A her view on the state of retirement planning in the United States, the top retirement risks for workers and how HR can help mitigate them.

Saturday, June 16, 2012
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For more than 30 years, Anna Rappaport has been researching, writing about and shaping responses to the changing demographics of our society.

The Chicago-based futurist and principal at Anna Rappaport Consulting focuses on the future of benefits and the implications of an aging workforce, and she is widely respected for her keen insights in the business, policy and retirement-planning communities.

Rappaport is also a member of the Society of Actuaries, where she serves as chair of the project-oversight group.

Her group recently produced the 2011 Risks and Process of Retirement Survey, the sixth biennial study of public perceptions related to retirement risks, conducted on behalf of the Society of Actuaries by Mathew Greenwald and Associates and the Employee Benefit Research Institute.

The survey of 1,600 U.S. adults ages 45 to 80 -- half retired and half still working -- found the greatest retirement concerns of both retirees and non-retirees relate to their ability to pay for healthcare, protect their savings against inflation and provide for long-term care when needed.

Staff Writer Michael J. O'Brien recently discussed with Rappaport some other findings of the survey.

How would you describe the current state of retirement planning in the United States?

In terms of the general planning of retirement, I'm really sad that it's not better. I think the move to freeze defined-benefit plans is really unfortunate. And there's a real issue surrounding retirement security and whether people are getting enough of it.

I think a key issue, where defined-contribution plans are the primary vehicle, is making sure that people are saving enough money. People think they have a plan, but they don't focus on how much money they will need or whether they are saving enough now so that they can retire with a decent amount of money. That's a big concern to me.

[Indeed, the survey finds that, while 57 percent of retirees say they have a plan for how much money they will spend each year in retirement and where that money will come from, only 35 percent of pre-retirees say they have such a plan.]

Another major concern is that many people have a shorter planning horizon than their future expected lifetime. [According to the survey, retirees typically look a median of five years into the future, while non-retirees look a median of 10 years ahead when making important financial decisions.] Gradually using assets with the expectation that they will last them their entire lives can easily lead to people running out of financial resources.

What are some of the more surprising findings of the most recent survey?

The three big issues that show up in our survey, year after year, are healthcare, long-term care and inflation. The order may change, but those same three show up every time.

Aside from that, 35 percent of pre-retirees now state that retirement will not apply to them -- up from 29 percent in 2009 -- because they will either be financially unable to retire, will choose to continue working, or [will remain in the workforce] for some other reason.

Those pre-retirees who eventually expect to retire think they will work longer than current retirees actually did. While 51 percent of retirees report they retired before age 60, just 12 percent of pre-retirees think they will retire that early. Instead, half of pre-retirees expecting to retire say they will wait at least until age 65 to do so.

Research from EBRI also shows a growing trend in people retiring earlier than they had originally planned to, either because they get sick, a loved one gets sick or they get laid off.

[Whatever the circumstances,] workers need to think about keeping their job skills up, because working is increasingly becoming a part of retirement these days. Now, when we say retirement, we don't mean a total exit from the labor force.

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A big thing for employers to do, from an HR point of view, then, is to ask: Might these people want to work part time? Will that be valuable to my company? How can I help people make that happen?

A few years ago, we were really concerned about skills shortages. We're not really concerned about that now, but I think we will soon again have skills shortages in certain areas, such as nursing. We need to think about how we can effectively help people who want to work in retirement, because that's an important issue.

Unfortunately, I don't see enough employers focusing on that now.

So, what else can organizations do to help their workers achieve retirement security?

People have been shown to be much more likely to save when their employer has a plan, and HR has long played a huge role in being a trusted source for workers. So the question now is: What's HR's role in helping their people create good, long-term financial security in the future, considering that HR is still the most-trusted source for that information?

Organizations typically don't want to tell people what to do, of course, but they can do a lot to help people simply become aware of some of the decisions they need to make.

In fact, the Society of Actuaries just released 11 decision briefs that are available on its website (www.soa.org), each one based on a different decision that people need to make around retirement, including one that deals with when to claim Social Security benefits, because there is a huge difference in monthly payment amounts when it is claimed at age 70 compared to age 62.

This is the kind of third-party, not-for-profit material employers can use to help people become aware of the issues. The briefs are designed to help people understand the questions they're facing and some of their options. They don't provide advice, but people who use them will say, "Oh, I didn't even think about that."

Ultimately, we've seen the world change a lot over the last few years.

Unfortunately, we haven't seen the planning strategies used by people -- or by organizations -- change that much.

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