The Employee Benefits Research Institute released a report outlining five types of retirees with the aim of helping them be better served by advisers, pension providers and others.
EBRI identifies the five profiles of retirees as average, comfortable, wealthy, struggling and just getting off.
The main characteristics used by EBRI to identify retiree profiles are financial assets, income, debt and property. The profiles reflect retirement living standards, retirement satisfaction levels and approaches to retirement spending.
The results are based on a September 2020 survey of 2,000 retirees aged 62 to 75 with less than $ 1 million in financial assets. The survey was conducted by EBRI’s Pension Security Research Center.
Average retirees were likely to report modest levels of financial assets ($ 99,000 or less) and intermediate income levels (between $ 40,000 and $ 100,000 per year), according to the EBRI.
According to the study: The majority of this group rely on income from a defined benefit pension plan as well as Social Security for their retirement income. Six in ten average retirees are looking to maintain or increase their financial assets in retirement. Almost half had credit card debt and almost as many also had a car loan. Average retirees generally reported that their standard of living in retirement was unchanged from what it was during their working years. They further rated their level of satisfaction with retirement at 7.8 on a scale of 1 to 10 (with 10 being the most satisfied).
Comfortable retirees reported middle income levels (similar to average retirees) but more assets – between $ 99,000 and $ 320,000, according to EBRI.
According to the study: These retirees had easily manageable debts. They were more likely to say that their retirement savings are sufficient or even greater than their needs and that they plan to grow, maintain or spend only a small portion of their financial assets in retirement. They reported having a wide variety of sources of income. And on average, they thought their standard of living hadn’t changed since their working years. Comfortable retirees were the second most satisfied with their retirement life after wealthy retirees.
Well-off retirees were more likely to have high levels of financial assets ($ 320,000 or more) and annual income ($ 100,000 or more), according to the EBRI.
According to the report: These retirees were mostly homeowners with no mortgages and no debt. Affluent retirees reported having access to more diversified sources of retirement income than retirees in other groups, with defined benefit pension plans and personal savings being the most frequently cited. They rarely reported having credit card and car loan debt. The majority of wealthy retirees said their standard of living has not changed or improved since retirement. They were, on average, the most satisfied with their retirement lives of all retiree groups.
Retirees in difficulty
Distressed retirees had low levels of financial assets (less than or equal to $ 99,000) and income (less than $ 40,000 per year), according to EBRI.
According to the report: They were more likely than any other group to rent rather than own their home. They were also the most likely to have unmanageable debt, such as credit card debt and medical debt. On average, these retirees rated their health as the worst of all groups. Troubled retirees rely on Social Security to provide the bulk of their retirement income. They thought they had a reduced standard of living compared to when they worked and rated their satisfaction with retirement the lowest of all, with an average score of 5.8 on the 1 to 1 scale. 10.
Barely out retirees also had low levels of financial assets and income, similar to struggling retirees, according to EBRI.
Extract from the report: Unlike retirees in difficulty, just over half of these retirees owned their homes for free. The majority reported no debt or easily manageable debt, and they were less likely than struggling retirees to have a credit card or medical debt. While recent retirees said Social Security is a major source of income, they were still reasonably likely to believe their standard of living is the same in retirement as when they were employed. Newly graduated retirees gave a retirement life satisfaction rating of 7.2 out of 10, on average.
Take away food
Guaranteed income, low debt, a clear spending reduction strategy and employer-sponsored retirement assistance – including counseling services – are the main drivers of retirement satisfaction and security, according to the EBRI report on the results.
“Retirees in all fields were generally reluctant to spend their personal possessions,” the report notes. “Often this preference to maintain the nest egg throughout retirement was associated with the uncertainties surrounding life and spending needs in retirement.”
The report suggests that employers should think about how they can help pension plan members turn their defined contribution pool of money into a pension-like experience. For example, employers can build very low commission institutionally priced annuities into the defined contribution plan or make life income illustrations available that show the impact of maintaining 25% of one’s balance throughout retirement. , adds the report.
Debt is a particularly important factor in the dissatisfaction, anxiety and poor standard of living of struggling retirees, according to the report. Using technology to “tailor messages, tools and approaches for those who have debt versus those who don’t” is essential, the report notes.
The report also suggests teaching pre-retirees the reality of working in retirement and creating paychecks.
“If regular income automatically comes from saving in a retiree’s checking account, it can facilitate spending and increase confidence in spending,” according to the report.
The report further highlights the role of counselors in helping people achieve their retirement goals.
“The traditional role of an advisor is not only to guide the investments of retirees, but also to strengthen retirees’ plans and help them understand whether they are on the right track or not. In other words, there is an element of empowerment that occurs when counselors are available to retirees, ”the report notes.
“For those who do not have an advisor, this area may not be addressed until retirement, when it may be too late,” the report adds.
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