A new research paper highlights several new observations about people who have limited financial assets in retirement, specifically findings regarding spending on financial shocks, or unexpected expenses, since retiring.
The report, by the Society of Actuaries, (SOA) notes that the types of shocks were generally consistent among groups. Focus group retirees mentioned spending large sums unexpectedly on housing repairs and maintenance, giving/lending children money, health care, marital changes after retirement, investment losses, inflation and taxes.
Very few shocks financially devastate the long-term retirees participating in the focus groups. The expenses that do are long-term care, divorce and providing major financial support to children. A separate SOA report explains that the types of shocks and unexpected expenses most often reported by retirees include major home repairs and upgrades (28%), major dental expenses (24%) and significant out-of-pocket medical and prescription expenses (20%).
While 3 in 10 retirees (28%) report experiencing none of the shocks or unexpected expenses listed in the study, 13% say they encountered three types of shocks in retirement and nearly one in five (19%) encountered four or more. One-quarter (24%) of retired widows indicate they have encountered four or more.
Divorce vs. Widowhood
Divorce in retirement is more financially devastating than widowhood, with divorced participants reporting losing half of their assets and often saying they have to move out of their family home as a result of their divorce. Meanwhile, some widowed participants are better off financially as a result of being widowed, either living off pension incomes that were designed for two or investing a large sum of money as a result of being widowed, thus making them financially better off as a result of their marital shock.
Very few report a major expense related to health care costs. American focus group participants cite Medicare supplemental insurance as the main reason they are able to avoid large health care costs in retirement. The few who report large medical expenses usually do not have a supplemental Medicare policy or fall into a gap in the policy.
The report, “Post-Retirement Experiences of Individuals Retired for 15 Years or More: A Report on Twelve Focus Groups and Fifteen In-depth Interviews in the United States and Canada,” notes that long-term care costs are a key concern going forward. While Americans worry about being able to afford long-term care, their Canadian counterparts worry about the quality of the long-term care they can afford.
Long-Term Cares
While there were concerns expressed, most of the individuals engaged in the study have neither set aside money for long-term care nor purchased long-term care insurance – and lack of planning was not confined to long-term care expenses but also to retirement in general. The report’s authors note that most focus group retirees focused their planning on spending in the first half of retirement. The majority did not have a financial plan when they entered retirement, nor do they have one now that they are in retirement. As for a plan going forward, most stated their financial plan going forward is to keep their asset levels where they are now.
Asked why they do not spend down more of their assets, many report that they want to leave something to their children.
Spend ‘Thrifts’
Both in 2013 and again in 2015, the Society found that near-term retirees do little planning and do not have a long-term goal for their assets, that they “essentially adapt and adjust to major expenses.” Ditto for longer-term retirees. That said, the report notes that the strategy of absorbing and adapting seems to have worked reasonably well for both short-term and long-term retirees of the type represented in the focus groups.
Many focus group retirees note that their expenses have changed over the course of their retirement, and that they pay more attention to what they need and try not to buy frivolous items or spend money lavishly.
Interestingly enough, very few of the retirees studied use a financial advisor. Some say they do not use an advisor because they have lost money with an advisor previously or they cannot find an advisor they trust. And women are more likely than men to report working with a financial advisor.
The report, by the Society of Actuaries, (SOA) notes that the types of shocks were generally consistent among groups. Focus group retirees mentioned spending large sums unexpectedly on housing repairs and maintenance, giving/lending children money, health care, marital changes after retirement, investment losses, inflation and taxes.
Very few shocks financially devastate the long-term retirees participating in the focus groups. The expenses that do are long-term care, divorce and providing major financial support to children. A separate SOA report explains that the types of shocks and unexpected expenses most often reported by retirees include major home repairs and upgrades (28%), major dental expenses (24%) and significant out-of-pocket medical and prescription expenses (20%).
While 3 in 10 retirees (28%) report experiencing none of the shocks or unexpected expenses listed in the study, 13% say they encountered three types of shocks in retirement and nearly one in five (19%) encountered four or more. One-quarter (24%) of retired widows indicate they have encountered four or more.
Divorce vs. Widowhood
Divorce in retirement is more financially devastating than widowhood, with divorced participants reporting losing half of their assets and often saying they have to move out of their family home as a result of their divorce. Meanwhile, some widowed participants are better off financially as a result of being widowed, either living off pension incomes that were designed for two or investing a large sum of money as a result of being widowed, thus making them financially better off as a result of their marital shock.
Very few report a major expense related to health care costs. American focus group participants cite Medicare supplemental insurance as the main reason they are able to avoid large health care costs in retirement. The few who report large medical expenses usually do not have a supplemental Medicare policy or fall into a gap in the policy.
The report, “Post-Retirement Experiences of Individuals Retired for 15 Years or More: A Report on Twelve Focus Groups and Fifteen In-depth Interviews in the United States and Canada,” notes that long-term care costs are a key concern going forward. While Americans worry about being able to afford long-term care, their Canadian counterparts worry about the quality of the long-term care they can afford.
Long-Term Cares
While there were concerns expressed, most of the individuals engaged in the study have neither set aside money for long-term care nor purchased long-term care insurance – and lack of planning was not confined to long-term care expenses but also to retirement in general. The report’s authors note that most focus group retirees focused their planning on spending in the first half of retirement. The majority did not have a financial plan when they entered retirement, nor do they have one now that they are in retirement. As for a plan going forward, most stated their financial plan going forward is to keep their asset levels where they are now.
Asked why they do not spend down more of their assets, many report that they want to leave something to their children.
Spend ‘Thrifts’
Both in 2013 and again in 2015, the Society found that near-term retirees do little planning and do not have a long-term goal for their assets, that they “essentially adapt and adjust to major expenses.” Ditto for longer-term retirees. That said, the report notes that the strategy of absorbing and adapting seems to have worked reasonably well for both short-term and long-term retirees of the type represented in the focus groups.
Many focus group retirees note that their expenses have changed over the course of their retirement, and that they pay more attention to what they need and try not to buy frivolous items or spend money lavishly.
Interestingly enough, very few of the retirees studied use a financial advisor. Some say they do not use an advisor because they have lost money with an advisor previously or they cannot find an advisor they trust. And women are more likely than men to report working with a financial advisor.
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