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Baby Boomers Face Longer Lives with Fewer Assets

Many may outlive their money

July 15, 2008

The study, conducted by Ernst & Young on behalf of Americans for Secure Retirement, found that almost three out of five new middle-class retirees will outlive their financial assets if they attempt to maintain their pre-retirement standard of living.

The study also finds that middle-income Americans entering retirement now will have to reduce their standard of living by an average of 24 percent to minimize the likelihood of outliving their financial assets. Those Americans seven years out from retirement are even less prepared and the study estimates that they will have to reduce their standard of living by even more, an average of 37 percent, the study said.

These reductions will be necessary even when assuming that retirees can maintain the same standard of living with income equal to 59 to 71 percent of their pre-retirement wages.

"Many Americans envision a retirement where their lifestyle continues much as before," said Tom Neubig of Ernst & Young. "Our work shows that this is not a realistic expectation and that, with the current state of savings and potentially very long life expectancies, many retirees will have to cut back far more on expenditures than they had ever expected."

The study concludes that retirees have a much more secure retirement if they have some type of annuity or defined benefit plan, of the type marketed by the sponsors of the study. However, consulting with an independent financial planner, not affiliated with any type of investment instrument, is usually the best way to find the best fit for your individual needs.

AARP survey

An AARP survey finds more Americans plan to put off retirement and work longer.

The decline in both the stock market and the real estate market has hit many baby boomers hard, to the point that an increasing number of people approaching retirement age think the prudent course is to keep working. The survey found that 20 percent of people age 55 to 64 plan to delay retirement because of the economic downturn.

Other key findings of the Ernst & Young study include:

• Persons that are 5-10 years away from retirement have a higher risk of outliving their financial assets than those currently at retirement age. To avoid outliving their retirement assets, these workers aged 55 to 59 will have to increase their savings substantially or work beyond age 65. Otherwise, they will have to reduce their standard of living significantly more than today's retirees to minimize the risk of exhausting their financial assets.

• Married couples are more likely to outlive their financial assets, due to their longer joint life spans, than single households.

• Montana, Wyoming and South Dakota citizens have the highest likelihood of outliving retirement savings.

• D.C., Rhode Island, Utah and New York citizens have the least likelihood of outliving retirement savings.

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