Press Release
Americans Facing Retirement Crossroads… Living Longer But Unprepared For Later Years
WASHINGTON, DC, February 27, 2002 -- MetLife today announced results of a comprehensive assessment of the state of Americans’ retirement including a study conducted by RAND and focus group research conducted by Mathew Greenwald & Associates.
Analyzing 10 years of retiree data, RAND developed the "MetLife Retirement Crossroads Study: Paving the Way to a Secure Future," commissioned by MetLife Retirement & Savings and the MetLife Mature Market Institute. The study offers insight for consumers in the planning process, uncovering factors that affect retirement including a direct correlation between satisfaction and having guaranteed lifelong income streams, advice from a financial advisor and retirement education.
"As Baby Boomers enter the next lifestage, a record number of Americans will be leaving the workforce," says C. Robert Henrikson, MetLife President, Institutional Business and a delegate at the 2002 National Summit on Retirement Savings ("SAVER Summit") beginning in Washington today. "This fact, coupled with increased longevity, the shift from traditional pensions to 401k plans, uncertainty about the direction of Social Security and the stock market, and escalating healthcare and long-term care costs, have led us to investigate ways consumers can better prepare themselves for retirement."
Retirement Savings Becoming Risky Business
In the past, through traditional defined benefit (DB) pension plans, many employees were guaranteed a steady stream of income in retirement. Employers assumed the longevity and investment risks, hiring experts to manage these risks. In recent years, with the rising popularity of defined contribution (DC) plans, such as 401k plans, most employees must bear the burden of their retirement security.
In fact, in 1978, 38 percent of American workers were covered by DBs and only 7 percent participated in DCs as their primary retirement plans. By 1997, the numbers had shifted with 21 percent participating in DBs and 25 percent participating in DCs as their primary plans.1
Learning from Experience
As consumers face a new and more uncertain retirement landscape, there are many lessons to be learned from previous generations. In fact, the Retirement Crossroads Study uncovers several factors that -- even setting aside net worth, total household income, age, sex and marital status -- have an impact on retirement satisfaction. They include having guaranteed lifelong income streams, advice from a financial advisor and retirement education.
The study identifies a positive correlation between an individual’s G.I.S. ratio (the percentage of an individual’s potential expenses that are covered by Guaranteed Income Streams, excluding Social Security, vs. money held in savings) and retirement satisfaction levels as follows:
Retirement
Satisfaction
Level: |
No GIS |
GIS Ratio
of 1-25% |
GIS Ratio
of 26–100% |
Total |
| Not at All |
11% |
4% |
3% |
8% |
| Moderately |
35% |
29% |
27% |
33% |
| Very |
54% |
67% |
70% |
59% |
Satisfaction also remains near constant over the duration of retirement for those who have guaranteed lifelong income streams. Among those without guaranteed income streams, satisfaction declines over time with the number saying they are very satisfied dropping from 58 percent shortly after retiring to 47 percent ten or more years later.
"The drop in satisfaction among those without guaranteed income streams may be a result of increasing anxiety about outliving their savings as they age," explains Dr. Constantijn Panis, Senior Economist for RAND and Retirement Crossroads Study leader. "The study highlights the increased need to address longevity and investment risks when creating a retirement plan."
Additionally, 71 percent of retirees who reported having had a financial advisor five years earlier say they are very satisfied with their retirement vs. 59 percent of those who did not have an advisor. Similarly, when asked if they ever attended any meetings on retirement planning, 71 percent of those who had attended meetings report being very satisfied with retirement vs. 55 percent who did not.
"With the shift towards individual empowerment, there is clearly an increasing need for education and advice to help consumers navigate the complex road to retirement," adds Henrikson. "The government and private industry must share the responsibility for making this education readily available."
Good News…Living Longer – But are We Ready?
The demographics highlight another "hitch" in the transition towards "lump-sum" retirement planning. Sixty-five-year-olds today will on average live 4 years longer than those in 1960. Since people tend to retire younger today than they did in 1960, their period in retirement is more than 4 years longer and longevity of Americans continues to rise.2 Retirees in the focus group warned of the need to plan for these added years.
"When I was in school [they taught me] my life was supposed to end at 65 or 70. Here I am 85. When I realized that I was living longer and longer and longer than the book said, [I decided] I had best take care of myself," said a female focus group attendee from Bethesda, MD.
Health and Long-Term Care…Significant Sources of Angst
In addressing future concerns of retirees, the study found health and long-term care played a significant role. When asked what the chances are that medical expenses will use up all of their savings in the next 5 years, the average response was nearly one-third (31 percent). Similarly, when asked the chances they will move into a nursing home in the next 5 years the average response was 15 percent. In fact, 71 percent of those with long-term care insurance coverage vs. 57 percent of those without this coverage reported being very satisfied with retirement.
"With the rise in health related costs, particularly driven by prescription drugs and long-term care, many retirees today struggle to fit these expenses into already tight budgets or find their assets quickly depleting," explains Dr. Sandra Timmermann, Director, MetLife Mature Market Institute. "Younger generations should not make the mistake of assuming Medicare will cover these costs when planning for retirement."
Other key concerns uncovered include an average response of only 46 percent when asked the chance that retirement income will keep up with inflation and an average response of 59 percent when asked the chance that Congress will change Social Security law to make it less generous than it is now.
About the Retirement Crossroads Study Conducted by RAND:
MetLife commissioned RAND to conduct the research and analysis for the study. Founded in 1948, RAND’s (www.rand.org) mission is to help improve policy and decision-making through research and analysis. RAND’s Labor and Population Program focuses on the social and economic status of the older population, U.S. labor markets, the demography of families and children, among other issues. The Program integrates the perspectives of various academic disciplines, including economics, sociology, demography, and epidemiology.
The data for the "MetLife Retirement Crossroads Study: Paving the Way to a Secure Future" comes from the Health and Retirement Study (HRS) and the survey of Assets and Health Among the Oldest-Old (AHEAD). These surveys have been administered since 1992–93 by the Institute for Social Research at the University of Michigan with main funding from the National Institute on Aging (part of the U.S. Department of Health and Human Services). A combination of methods were used by RAND to analyze the data from these surveys for the MetLife study. In some cases, simple cross-tabulations were utilized. In other cases, multivariate analysis was performed to determine which factors were associated with satisfaction (for example) when income, wealth, and other factors were held equal.
About the Focus Groups Conducted by Mathew Greenwald & Associates:
Commissioned by MetLife, Mathew Greenwald & Associates (www.greenwaldresearch.com) conducted a series of focus groups to gain insight about how current retirees prepared for retirement and what their financial concerns are today. Six focus groups were held in January and February of this year. The groups took place in Bethesda, Maryland and Columbus, Ohio and included both satisfied and unsatisfied retired individuals segmented into 3 age groups: 60-68, 69-75 and 75 and older.
About MetLife:
MetLife, a subsidiary of MetLife, Inc. (NYSE: MET), is a leading provider of insurance and other financial services to individual and institutional customers. The MetLife companies serve approximately nine million individual households in the U.S. and companies and institutions with 33 million employees and members. MetLife also has international insurance operations in 13 countries. For more information about MetLife, please visit the company's Web site at www.metlife.com.
MetLife Retirement & Savings delivers integrated retirement programs and innovative investment management services for defined contribution (DC) and defined benefit (DB) plans. The MetLife Mature Market Institute is MetLife’s focal point and resource center for issues concerning aging, retirement, long-term care and the mature market.
