• The myth of outliving your retirement savings

    From a425couple@21:1/5 to All on Fri May 11 15:16:34 2018
    XPost: alt.politics.economics, alt.economics, seattle.politics

    from https://www.reuters.com/article/us-column-marksjarvis-savingsmyth/the-myth-of-outliving-your-retirement-savings-idUSKBN1I3293

    The myth of outliving your retirement savings
    Gail MarksJarvis
    5 MIN READ

    CHICAGO - (The opinions expressed here are those of the author, a
    columnist for Reuters.)

    FILE PHOTO: Piggy banks filled with money are displayed on a desk during
    a "Save our economy" campaign by Korea Saemaulundong Centre in Seoul
    April 7, 2009. REUTERS/Jo Yong-Hak
    When Doug Anderson retired as an electrician at the end of 2016, he
    worried would run out of money. So he put himself on a miserly spending

    A financial planner disagreed, however, and assured Anderson that his
    pension and savings would be plenty for a lifetime. In fact, the planner
    told Anderson to give himself a break and have some fun.

    In response, Anderson, 67, and his wife Pam, 65, took three driving
    vacations last year from their suburban St. Paul, Minnesota home.
    Anderson also treated himself to a new – but used – Chevrolet Silverado pickup truck.

    “It’s beautiful,” said Anderson, who rarely indulged himself while working and raising six children. “I roll down the window, stick my arm
    out, play retro music and turn back the clock 40 years.”

    The World at Work: What are companies doing to make themselves better,
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    Most retirement research points to an impending retirement crisis for
    about half of Americans who save too little. But a new study suggests
    that behavior like Anderson’s makes the outlook far less dire. Because
    people worry about outlasting their savings, most adjust by living
    humbly – often overly so. Consequently, they make even modest savings
    last for years longer than expected by researchers.

    While some people do run out of money, a person with less than $500,000
    in savings, on average, spends just about a quarter of it during the
    first 20 years of retirement, according to a study by Sudipto Banerjee
    of the Employee Benefit Research Institute.

    One-third actually end up with a nest egg larger than they had when they
    left their jobs, the study says. Even people who had only $32,000
    shortly after leaving the workforce had about $24,000 left some two
    decades after retiring.

    Rational behavior defies the assumption in many studies that people
    exhaust their savings and live in crisis, Banerjee said. He used
    government data from the U.S. Health and Retirement Study to track
    retirees born between 1931 and 1941 with assets ranging from stocks,
    bonds, mutual funds, real estate and CDs to savings and checking
    accounts. Individual homes were excluded, although people with homes and pensions stretched their savings the furthest.

    “People don’t know how long they are going to live,” said Lori Lucas,
    the president and chief executive of the Employee Benefit Research
    Institute. “They may also be afraid of facing catastrophic healthcare
    costs if they need to stay in a long-term care facility for a prolonged period.”

    Those uncertainties are valid, yet many people overdo frugality, said
    Brett Anderson, the financial planner who urged Doug Anderson to treat
    himself a little. (The two men are not related.)

    “I have a lot of clients who are very well off financially and live in trailers in Florida,” said the Hudson, Wisconsin financial planner.
    “They are quiet millionaires.”

    The EBRI study found conservative spending among every income group.

    “People don’t want to touch their nest eggs,” said financial planner Anderson. “They feel fine spending interest or income from their
    investments but are reluctant to touch anything else.”

    In the EBRI study, those with the most savings - a median of $857,450
    shortly after retiring - still had $756,300 two decades later. The
    decrease amounts to just 11.8 percent of the original sum.

    The largest drop in retirement nest eggs, 24.4 percent, was among those
    with the least savings, or a median of $29,975.

    Frugal behavior is consistent with research led by Anna Rappaport for
    the Society of Actuaries. She and her team found that most people do not
    plan for retirement or know what they should spend, but they adapt -
    even when shocked by high dental bills or a roof repair.

    What can devastate financially are divorce, caring for a mentally or
    physically ill adult child who cannot work, and long-term care expenses, according to the Society’s research.

    Still, debilitating healthcare costs are far more rare than people fear, according to the EBRI research. Half of retirees face no nursing home
    expenses since Medicare covers short recoveries after hospital stays and Medicaid can help when resources run out.

    The medical annual out-of-pocket spending for 90 percent of retirees is
    just $2,000, and the big nursing home costs over $87,000 hit only 10
    percent of people living longer than 95, according to the EBRI study.

    (This version of the story adds the word ‘he’ in the first paragraph.) Editing by Lauren Young and Steve Orlofsky
    Our Standards:The Thomson Reuters Trust Principles.

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