Seven Retirement Gaps And What To Do About Them

By: Anna Rappaport
Anna Rappaport is an internationally recognized actuary, consultant, author, and speaker. She focuses on on the impact of change on retirement systems, workforce issues, women’s security, disability and defined contribution plans, phased retirement, and improving the individual’s ability to plan.

What do we expect to happen as we age, and how do our ideas about retirement planning change? New research on post-retirement risks by the Society of Actuaries identifies where the knowledge gaps are and how we can do better.

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Important changes as we age include the following:

(Usually) Anticipated change – for instance:

  • Retirement
  • Marriage, divorce, or family members moving in or out
  • Moving to a new dwelling or city (including senior housing, retirement community, or to be with family)

Less-anticipated changes can be due to:

  • Gradual physical and mental decline
  • Onset of chronic disease
  • Erosion of assets through inflation
  • Family illness

Sudden unplanned shocks are also important – for instance:

  • Job loss
  • Investment losses or fraud
  • Huge unexpected expenses
  • Family emergencies
  • Catastrophic illness
  • Loss of a family member

All too often we tend to forget, or minimize, results from the last two categories of age-related changes. And things do not happen as planned.

For this reason, it pays to start early, identifying these gaps and deciding what to do about them. Our research shows that the following seven gaps are worth thinking about and discussing with family members and advisors, before it’s too late.

  1. Most people with defined contribution pension plans lack disability insurance coverage, though this is critical to protect retirement savings if they become disabled. A related trap is that some people must dip into their retirement accounts during periods of disability. To do better: make sure you have adequate disability income coverage, and don’t draw on retirement savings early, if possible. An individual disability insurance policy can be used to supplement employer-sponsored disability to help you preserve retirement funds if you become disabled at an early age.
  2. Some retirees and near-retirees do not plan at all, and of those who do, they tend to look ahead 10 years or less. They also tend to think only about current or regular expenses. To do better: consider the longer term, taking into account risk and the potential for the unexpected. In other words, your plan should focus on managing resources over the long term.
  3. Many people think they will retire much later than they actually do. A recent risk survey showed that pre-retirees expected to retire at a median age of 65, whereas the already-retired left their primary occupations at a median age of 58. The reality is that many people are “pushed” into retirement by job loss, poor health, family needs, or an unpleasant work environment. To do better: develop and implement a contingency plan, in the event of earlier than expected retirement.
  4. Households often fail to plan for the death of the first spouse. In fact, only 23% of pre-retirees and 31% of retirees had planned for the loss of a spouse, in the same survey. In fact, it costs a single person about three-quarters of what it cost the couples to live, but Social Security benefits can fall by more. To do better: Survivor planning must address both financial and non-financial issues. The financial ones might require getting an advisor to sort out, but the non-financial concerns can be even more important. This includes building a support network, having activities that continue, finding suitable housing, and being near family, even if it involves a move.
  5. While mental and physical capacity change with age, many older people don’t anticipate this accurately. Over half of retirees surveyed believed that there would never be a time when they could not manage their money, and another third felt that such a time would be at least 20 years away. Moreover, a quarter of retirees never anticipated having any trouble moving around, and another half believed that such a change wouldn’t occur before 20 years away. To do better: think about these changes and be realistic about how you will handle them. Having family members nearby can provide some support.
  6. A majority of pre-retirees expects to work to supplement their income, but only two in 10 actually do so. To do better: if you must work in retirement, be realistic about how to make it happen and what type of work you might be able to get. Keep your skills up to date, and grow your networks.
  7. Long-term care is expensive, sometimes catastrophically so. And if the partner needing long-term care is the first to die, the survivor is often far worse off as a result of the long-term care event. Though Medicare does not cover most long-term care, many do not know that. To do better: long-term care insurance can help reduce the risk, and without such insurance, you’ll need considerably more assets. Those without insurance and no assets may end up on Medicaid, which is far from a substitute for private financing.

To earn a satisfying retirement, advance planning must include a realistic assessment of the risks and opportunities we face.


This piece was originally posted on June 1, 2015 on the Pension Research Council’s curated Forbes blog. To view the original posting, click here.
Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania.