Tuesday, May 8, 2018
Most commentaries on funding for retirement years point to insufficiency of savings or other resources. But here's a different take, drawing upon a recently published report from the Employee Benefit Research Institute (EBRI) that suggests retirees with significant savings are often exercising restraint in spending, From the St. Louis Post-Dispatch on The Myth of Outliving Your Retirement Savings:
In the EBRI study, those with the most savings — a median of $857,450 shortly after retiring — still had $756,300 two decades later. The decrease amounts to just 11.8 percent of the original sum.
The largest drop in retirement nest eggs, 24.4 percent, was among those with the least savings, or a median of $29,975.
Frugal behavior is consistent with research led by Anna Rappaport for the Society of Actuaries. She and her team found that most people do not plan for retirement or know what they should spend, but they adapt — even when shocked by high dental bills or a roof repair.
What can devastate financially are divorce, caring for a mentally or physically ill adult child who cannot work, and long-term care expenses, according to the actuarial society’s research.
Still, debilitating health care costs are far more rare than people fear, according to the EBRI research. Half of retirees face no nursing home expenses because Medicare covers short recoveries after hospital stays and Medicaid can help when resources run out.
The medical annual out-of-pocket spending for 90 percent of retirees is just $2,000, and the big nursing home costs over $87,000 hit only 10 percent of people living longer than 95, according to the EBRI study.
For the EBRI study itself, see the April 2018 report on Asset Decumulation or Asset Preservation? What Guides Retirement Spending?