Retirees could face final years in poverty

Angela Carter

Jul. 15, 2008 (McClatchy-Tribune Regional News delivered by Newstex) -- Middle-class Connecticut households nearing retirement face a high risk of outliving their financial assets and spending their final years in poverty, says a new national study.

According to "Retirement Vulnerability of New Retirees: The Likelihood of Outliving Their Assets," more than three-quarters of middle-income households in the state -- those earning $40,000 to $110,000 -- that are within seven years of retirement can expect to outlive their financial assets if they try to maintain the standard of living enjoyed during the working years.

That number rises to nine out of 10 if the retirees do not have an employer pension plan, according to the study, released Monday.

As for those newly retired at age 65, nearly six out of 10 new retirees can expect to outlive their assets. That figure jumps to eight out of 10 among those who do not have a pension plan.

The report was released by economists at Ernst and Young LLP on behalf of Americans for Secure Retirement, a coalition of more than 50 groups that represent the varied interests of women, small businesses, blacks, Hispanics and the agriculture and life insurance industries. Longer life spans, volatile investment returns and a decline in employer pension plans are increasing retirement risks, the study found.

"People tend to underestimate how much they need to save. They underestimate how long they're going to live," said Joe Reali, chairman of Americans for Secure Retirement, adding that people overestimate how much in goods and services they can consume during retirement.

For example, someone earning $100,000 per year would have to scale down to a range of $60,000 to $70,000 in consumption during retirement to maintain a comparable standard of living, while a household that earns $70,000 preretirement would have to cut back to about $50,000, said Tom Neubig, the study's lead author and national director of quantitative economics and statistics for Ernst and Young.

Reali encouraged advanced planning and investing in vehicles that would provide a steady stream of income, such as annuities or 401(k) and other defined contribution plans. These tools supplement pensions and Social Security, the main source of guaranteed retirement income.

Reali said that 30 years ago, 40 percent of retirees could count on a defined benefit or pension plan, but the pool has plummeted to 21 percent and is still dropping.

To encourage people to build a steady source of guaranteed income during retirement, Americans for Secure Retirement is supporting federal legislation, the Retirement Security for Life Act, which would exclude up to $20,000 per year of annuity income from taxation.

Newstex ID: KRTB-0141-26665544