Americans do not know what it takes to be financially secure in retirement, according to the results of a survey by the MetLife Mature Market Institute.
Of the 1,213 pre-retirees ages 56 to 65 who took the 15-question survey, the majority answered only five of the questions correctly, illustrating that there are misperceptions in a number of core areas, including life expectancy, inflation, retirement income/savings, long-term care insurance and Social Security, the report found.
Respondents of the 2011 MetLife Retirement Income IQ survey, for the most part, recognized that people are living longer and will be dependent on Social Security and other steady lifetime income for their prolonged retirement. An increased number of respondents believe Social Security and Medicare are more important compared with five years ago; and 45 percent of those surveyed said they are likely to work longer than previously planned. Only 17 percent knew that delaying the collection of Social Security by three years would add 24 percent to the amount they receive, the survey found.
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Only 45 percent of those surveyed knew that experts believe retirees need between 80 and 90 percent of their pre-retirement income to maintain their current standard of living. Nearly three in ten respondents incorrectly believe that retirees should limit the percent they withdraw from their savings each year to 7 to 10 percent; 11 percent felt they should withdraw 11 to 15 percent. Most experts recommend limiting that percentage to 4 to 6 percent annually.
"Everyone knows they're likely to live longer, but most don't realize that can mean living past age 85 and they fail to calculate how much money they will need for a steady and lasting income," said Sandra Timmermann, director of the MetLife Mature Market Institute. "The 'replacement ratio' of the percent of pre-retirement income necessary to manage essentials, including basic expenses, in retirement is often underestimated and too many people overestimate how much of their savings they can safely withdraw each year. Employers and others advising Americans should be helping pre-retirees to 'connect the dots' so, given the uncertain economic climate, they can have a clear picture of their prospects and the financial income strategies needed."
Key findings from the study include:
- Sixty-two percent of those surveyed in 2011 realize that the greatest financial risk facing retirees is longevity, compared with 56 percent in 2008 and 23 percent in 2003.
- When asked about concerns during retirement, the number one answer, by far, was having enough income to cover essential expenses (32 percent), followed by the ability to afford health care (18 percent).
- The majority (87 percent) of respondents have taken steps toward ensuring adequate income for retirement, such as increasing their contributions to retirement plans or extending their working years. Just under two-third (62 percent) of them are currently seeking financial product advice.
- As the options for retirement income sources have expanded, more attention is being given to products such as reverse mortgages, but there is still a general lack of knowledge. Almost one-quarter (24 percent) correctly identified that a reverse mortgage is accessible only to homeowners age 62 or older, but more than half (54 percent) were unaware that a reverse mortgage can be used to purchase a primary home.
- After years of public education on long-term care costs, 42 percent of Americans still incorrectly believe that health insurance, Medicare or disability insurance will cover the cost of long-term care.
The MetLife Mature Market Institute is MetLife's center of expertise in aging, longevity and the generations.
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