Data & Research September 8, 2010

Boomers and Older Americans Aware of Retirement Crisis

Longer life spans, increased personal responsibility for retirement savings, and the recent market downturn can seriously impact a person’s retirement preparedness and most Americans in a recent study are aware of this.
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Allianz Life Insurance Company of North America’s survey of 3,257 U.S. adults ages 44 – 75 found 92% agree there is a retirement crisis in America. Among respondents in their late 40s, 97% agree there is a retirement crisis, while all respondents with lower income levels agree.  

The Allianz Reclaiming the Future Study found that among respondents ages 44 – 54, more than half (51%) say they feel unprepared for retirement, 57% worry that their nest egg will not be large enough in retirement, and 47% are afraid of not being able to cover even their basic living expenses in retirement.  

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Between 58% and 60% of all age groups report worrying about longevity. Sixty-one percent of respondents say they are more afraid of outliving their assets than they are of death.  

The study also indicated that the recent market downturn was a wake-up call for many Boomers and older Americans. Forty-six percent say that since the downturn, they’ve decided that protecting the security of their savings is “much more important now.”  

Sixty-nine percent of respondents say they would prefer a retirement savings product that is “guaranteed not to lose value.” Eighty percent would choose a product with a 4% return and a guarantee not to lose value over a product with an 8% return and no guarantee.  

In its Reclaiming the Future Study, Allianz identified five different financial personalities of respondents: 

  • Overwhelmed: 32% of respondents said they feel unprepared for retirement. This group expects to have to reduce their living expenses in retirement and they are counting on social security for retirement income. 
  • Iconic: 20% of respondents are confident their income will last through retirement. They have reduced some of their spending, and they have a handle on their retirement expenses. 
  • Resilient: 27% have planned ahead, and most are planning on investing, working longer, or supplementing social security with some other form of income. 
  • Distracted: 7% of respondents have seen their net worth drop significantly but have not changed their retirement plans or reevaluated their overall financial strategy. 
  • Savvy: 14% of respondents say they are living comfortably in retirement or will retire comfortably. They have large, diversified portfolios, are comfortable taking risks, and confident their income will last throughout their lives. 

 

The study report can be downloaded from https://www.allianzlife.com/MediaCenter/ReclaimingTheFuture.aspx.  

The Markets September 8, 2010

Not Many Know They Can Undo Roth Conversion

A Fidelity Investments study finds that less than a third of investors who are newly eligible to complete a Roth IRA conversion are aware of the flexibility they have to “undo” the move.
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Fidelity explained in a press release that the process, known as “recharacterization,” allows an investor to reverse amounts converted from a Traditional IRA to a Roth IRA and recover any taxes paid. The deadline for completing a recharacterization is usually on or about October 15.  

When investors were asked what circumstances would spur them to recharacterize their Roth IRA, the top reason cited was an unexpected drop in their taxable income in retirement (54%). Forty-four percent of investors said they would recharacterize if the additional taxable income from a Roth IRA conversion puts them into a higher federal income tax bracket.   

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Other reasons included not having sufficient cash reserves to cover the tax bill (35%) and a significant drop in the value of investments after converting to a Roth IRA (32%).  

According to the press release, the survey coincides with the publication of a new Fidelity Viewpoints article to help investors understand the recharacterization process. The article includes a hypothetical example that illustrates a Roth IRA conversion, recharacterization and another subsequent conversion.  

 

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