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Posted: July 22, 2008

Caregivers Today Face Longer Lives with Fewer Assets Tomorrow

While family caregivers in their 50s and 60s today can look forward to longer lifespans than even the parents they care for, a new study suggests these baby boomers will need to tighten their belts as they age because they are likely to outlive their assets.

 

The study, conducted by Ernst & Young on behalf of Americans for Secure Retirement, found that almost three out of five new middle-class retirees will outlive their financial assets if they attempt to maintain their pre-retirement standard of living. The impact of caregiving, both from lost wages to out-of-pocket costs, is often cited in research as weighing heavily of family caregivers as they move swiftly towards retirement.

 

The new study also finds that middle-income Americans entering retirement, many of whom either have cared for aging parents or still are, now will have to reduce their standard of living by an average of 24% to minimize the likelihood of outliving their financial assets. Those Americans seven years out from retirement are even less prepared and the study estimates that they will have to reduce their standard of living by even more, an average of 37%, the study said.

 

These reductions will be necessary even when assuming that retirees can maintain the same standard of living with income equal to 59% to 71% of their pre-retirement wages.

 

"Many Americans envision a retirement where their lifestyle continues much as before," said Tom Neubig of Ernst & Young. "Our work shows that this is not a realistic expectation and that, with the current state of savings and potentially very long life expectancies, many retirees will have to cut back far more on expenditures than they had ever expected."

 

The study concludes that retirees have a much more secure retirement if they have some type of annuity or defined benefit plan, of the type marketed by the sponsors of the study. However, consulting with an independent financial planner, not affiliated with any type of investment instrument, is usually the best way to find the best fit for your individual needs.

 

Moreover, a separate AARP survey finds more Americans plan to put off retirement and work longer for the reasons cited in the Ernst & Young survey.

 

Aside from lost wages and out-of-pocket expenses, the decline in both the stock market and the real estate market has hit many baby booming caregivers hard, to the point that an increasing number of people approaching retirement age think the prudent course is to keep working. The AARP survey found that 20% of people age 55 to 64 plan to delay retirement because of the economic downturn.

 

Other key findings of the Ernst & Young study include:

 

• People 5-10 years away from retirement have a higher risk of outliving their financial assets than those currently at retirement age. To avoid outliving their retirement assets, these workers aged 55 to 59 will have to increase their savings substantially or work beyond age 65. Otherwise, they will have to reduce their standard of living significantly more than today's retirees to minimize the risk of exhausting their financial assets.

 

• Older married couples are more likely to outlive their financial assets, due to their longer joint life spans, than single households.

 

• Montana, Wyoming and South Dakota residents have the highest likelihood of outliving retirement savings.

 

• D.C., Rhode Island, Utah and New York residents have the least likelihood of outliving retirement savings.

 

(Article courtesy of ConsumerAffairs.com)

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