|Are you ready for retirement?
The study assumes a retirement age of 65 and that retirees will
wring out the value from all their assets to make ends meet during
retirement. For example, financial assets such as 401(k)s
and IRAs will be used to purchase inflation-indexed annuities (which
"are neither readily available nor popular with consumers,"
the study's authors concede, but "they provide a convenient
tool for converting a lump sum of wealth into a stream of income").
Also, the study assumes that Americans will take out reverse mortgages
on their homes to help pay for their expenses.
Those assumptions run counter to actual events in
American households. In fact, many Americans retire earlier than
age 65 due to circumstances beyond their control. Many don't buy
annuities, and most don't take out reverse mortgages. That may very
well change. Today's retirees are "living in a 'golden age'
that will fade as baby boomers and Generation Xers reach traditional
retirement ages in the coming decades," say the study's authors.
The implication: We might be forced to drain our assets
if we don't proactively change our retirement or savings patterns
for the better
Here's how we can tweak ourselves into a more secure retirement,
according to the study: Increase our savings rates by 3 percentage
points from an early age.
OK, that's not a pat solution that applies to every
individual; it's a statistic that, broadly applied, improves the
numbers in a study. For one thing, the right number for you would
depend on what you've been saving all along. If you've been diverting
5 percent of your income into a retirement plan, you'd have to bump
it up by more than 3 percentage points. If you've been saving 20
percent, you probably don't need to do anything.
For another thing, some of us are too old to implement
this strategy successfully. We don't have a time machine that would
enable us to go back and increase our savings by 3 points from an
early age. But we can increase our savings rates beginning now --
or at least before we approach that impending retirement deadline.
The study suggests another option: Put off that deadline
until age 67. Our retirement prospects would improve immensely if
we could continue to add to our retirement savings an extra two
years. Statistically speaking, the 43 percent of Americans at risk
of having inadequate savings would drop to 32 percent if retirement
were postponed to age 67.