I was driving home recently when my dashboard lit up with a warning that in just 63 miles, I’d run out of gas. I appreciated the warning — my car has one of those gauges that seems to fall faster once you get under a quarter of a tank — so it was nice to get not just a warning, but a specific target. Armed with that knowledge, I proceeded to drive home — and later that night to drive to a destination that, while some distance away, was still well within the parameters established by the warning gauge.
I was about halfway to that destination when the dashboard warnings began anew. The projected mileage began to shrink rapidly — more rapidly than the miles passing on my odometer. Distressingly, this happened at a time of day and a point in my journey where my opportunities for refueling weren’t numerous.
Advisors know that even the best retirement planning requires a fair number of assumptions, including:
• the age at which you hope to retire;
• the amount of income that living in retirement will require;
• the length of time your retirement will last;
• the rate of return on your savings prior to, and following, retirement; and
• the sources of retirement income that will be available to you, and in what amount(s).
Consider that while worker confidence in having enough money to pay basic expenses in retirement wasn’t exactly high in a 2012 EBRI study (only 26% were very confident), workers were noticeably less likely to feel very confident about their ability to pay for medical expenses after retirement (13%) and even less likely to feel very confident about paying for post-retirement long-term care expenses (9%). These levels have remained statistically unchanged since 2010.
Earlier research found little impact of reductions in coverage on retirees, but the report notes that that may be because initial changes employers made to retiree health benefits affected future retirees, rather than those retired at the point of change. A recent EBRI Issue Brief highlights that, over time, more and more retirees have “aged into” those program changes, resulting in the greater impact found in more recent studies. The report also notes that most employers that continue to offer retiree health benefits have made changes in the benefit packages they offer — changes that impact both the cost and availability of the benefit.
However, as that Issue Brief also notes, very few private-sector employers currently offer retiree health benefits, and the number offering them has been declining, even in the public sector: Between 1997 and 2010, the percentage of non-working retirees over age 65 with retiree health benefits fell from 20% to 16%. Still, expectations seem to outpace reality; in 2010, 32% of workers expected retiree health benefits, while only 25% of early retirees and 16% of Medicare-eligible retirees actually had them.
Back to my almost-on-fumes adventure. After more than a few nervous miles, I was able to find a gas station. It occurred to me later that I might well have stopped for gas earlier, had I not relied on the first warning as an accurate gauge of the resources available.
Circumstances change, expectations matter, and retirement planning that relies on flawed or outdated expectations can, unfortunately, leave us short of where we need to be.
