SRES

Posted by Kerry Hannon…Personal Finance with Forbes

Plan to work into your 80′s is the message of a new study, Retirement Income Adequacy,  The Impact of Deferring Retirement Age released by the nonpartisan Employee Benefit Research Institute (EBRI).

“Our research finds that many people may have to delay retirement far beyond age 65 to increase the probability that they have enough money to cover their retirement expenses at a comfortable level,” said Jack VanDerhei, EBRI’s research director and co-author of the report.

The study finds that if Baby Boomers and GenXers delay their retirement past the age of 65, many of them still would not have adequate income to cover their basic retirement expenses and uninsured health care costs.

The research also shows that even if a worker delays his or her retirement age into their 80′s, there is still a chance the household will run short of money in retirement.

The chance of having enough money improves significantly as individuals reach their late 70′s and early 80′s.

Backing up this demand for more money to live in retirement is research from the quarterly Principal Group’s Financial Well-Being Index.  The index, which surveys both American workers at growing businesses with 10 to 1,000 workers and retired Americans, found that nearly half of the 523 retirees surveyed said that retirement was more expensive than they had anticipated.

The research also shows that the reason that retirees are not reaching their financial goals is that a third are not saving enough and more than a quarter did not start saving early enough in their careers which are among the top hindrances to their personal financial success.

Costly out-of-pocket healthcare costs are the biggest expense for retirement living.  A typical 65-year-old married couple without chronic conditions will need $197,000 to pay for out-of-pocket medical costs throughout retirement, according to calculations by the Center for Retirement Research at Boston College.  That figure includes insurance premiums, services not covered by Medicare and home health care expenses, but it excludes nursing home care.  Retirees also have a 5% chance that health care costs that are not covered by insurance will exceed $311,000, according to “the study”, which was underwritten by Prudential.

Other researches have come up with equally large numbers.  Fidelty Investments estimates that a couple, both age 65 in 2011, will need approximately $230,000 to cover medical expenses throughout retirement not including nursing home care.

If you can keep working and keep putting money into a 401(K) plan or other defined contribution plan, you’re much better off.  “What really makes a positive difference, we found, is if people who continue to work after 65 also continue to contribute to a defined contribution retirement plan, according to EBRI’s VanDerhie.

According to the report, a major factor that makes a difference in a person’s ability to meet their basic expenses and uninsured health care costs in retirement, is whether they are still participating in a defined contribution retirement plan (such as a 401(K) after the age of 65.

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