New research from Global Atlantic Financial Group has found that nearly two in five (39%) U.S. retirees are spending more than they expected and just under one-half (49%) of pre-retired consumers (ages 40+) believe planning for retirement is more difficult for them than it was for their parents.
With countless surveys every year indicating that Americans are financially unprepared for retirement, Global Atlantic set out to examine the finances of both retirees and those saving for retirement. By collecting and analyzing data from over 4,000 people across the United States, the Global Atlantic Retirement Spending Study: Perception vs Reality uncovered a wealth of information about how Americans expectations for retirement costs align with reality.
While the typical non-retired U.S. consumer over the age of 40 spends $2,993 a month, on average, the typical retiree spends 32% less ($2,008). Most common areas where retirees are spending less than pre-retirees include discretionary expenses such as entertainment (29% less), dining out or restaurant take-out (24% less), traveling (18% less), and housing (23% less on mortgage payments and 22% less on rent).
Diversity of Income Streams Reduces Need for Retirement Cutbacks
The study also examined retirement spending among those with additional sources of income. Retirees collecting income from pensions or annuities are able to sustain significantly more expenses than those who do not.
The average retiree with a pension spends 39% more that those without a pension ($2,379 vs. $1,709), and just 20.5% less than pre-retirees. Those with an annuity spend 37% more than the average retiree who does not have an annuity ($2,545 a month vs. $1,850 a month), and just 17.6% less than pre-retirees. The most common areas where these retirees spend more include, rent on primary a home, dining out at restaurants, and recreation.
Many Americans adjust their lifestyles and cut spending once they see how quickly costs can add up in retirement, said Paula Nelson, President, Retirement at Global Atlantic. Our study indicates that while those with pensions and annuities still often make changes as they age, there isnt as much of a need to drastically adjust their spending. This doesnt surprise us, as guaranteed income beyond social security can help retirees maintain the lifestyles that they are accustomed to even after they stop working.
More than half (56%) of non-retired Americans ages 40 and up place high importance (9 or 10 on a 10-point scale) on generating ongoing income to pay for basic living expenses in retirement, such as housing, food, transportation and utilities. Two-thirds (66%) say that they are on track to generate enough income to meet these needs.
Financial planners have traditionally used the analogy of a three-legged stool to discuss retirement planning; the three legs symbolized Social Security, pensions and personal savings, Ms. Nelson said. However, as pensions gradually disappear, personal savings are often insufficient and uncertainty around Social Security grows, these three legs are increasingly seen as inadequate, leaving individuals and their advisors searching for other income sources.
Ms. Nelson added: While older retirees are collecting income from employer-sponsored retirement plans, such as pensions, younger and future retirees may not receive the same benefits. Not only have pensions gradually become less common, but the data shows that younger retirees are also less likely to have much saved in other defined contribution plans, like 401(k)s. Retirees without pensions often look to annuities to fill that role.
Retirees, Especially Women, Regret Retirement Planning Missteps
The fact that retirees spend less than non-retirees may not be by choice, as more than half (55%) of retirees have retirement planning regrets. The top three financial regrets are:
- not saving enough (36%)
- relying too much on Social Security (20%)
- not paying down debt before retiring (12%)
Women are more likely than men to have retirement planning regrets (62% of women vs. 47% of men.) Consequently, more women than men adjusted their lifestyle in retirement with spending cutbacks on restaurants and entertainment (51% vs. 42%) and travel (42% vs. 34%).
Retirees who do have annuities are significantly less likely to have retirement planning regrets than those who do not have annuities (42% of those with annuities have regrets, compared to 58% who do not have annuities). Similarly, those with pensions are less likely to have regrets than those without pensions (43% vs. 65%).
To view more data, insights and interactive graphics from the Global Atlantic Retirement Spending Study: Perception vs. Reality, including data referenced in the press release, please click here.
The Global Atlantic retirement study was completed online among a random sample of the general U.S. population aged 40 and older, including an oversample of 10 of the most populous states: California, Texas, Florida, New York, Illinois, Pennsylvania, Ohio, Georgia, Michigan, and New Jersey. North Carolina was included in the national sample but not oversampled due to effects of Hurricane Florence on the state.
A total of 4,223 consumers participated, equally representing retirees and individuals not retired. Fieldwork was led by independent global market analytics firm Echo Research between September 12 and 24, 2018. The margin of error when reporting on the total sample of retirees and individuals not retired is +/- 2.1 percent at the 95 percent confidence level.
About Global Atlantic
Global Atlantic Financial Group, through its subsidiaries, offers a broad range of retirement, life and reinsurance products designed to help our customers address financial challenges with confidence. A variety of options help Americans customize a strategy to fulfill their protection, accumulation, income, wealth transfer and end-of-life needs. In addition, Global Atlantic offers custom solutions and responsive service for the capital, risk and legacy-business management of life and annuity insurance companies around the world.
Global Atlantic was founded at Goldman Sachs in 2004 and separated as an independent company in 2013. Its success is driven by a unique heritage that combines deep product and distribution knowledge with insightful investment and risk management capabilities, alongside a strong financial foundation of over $60 billion in assets.
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