As people continue to live to older ages, they will face challenges in retirement, according to a new report from the Center for Retirement Research at Boston College, “What Financial Risks do Retirees Face in Late Life?”
The main challenges they face are high out-of-pocket medical expenses, the possibility of making financial mistakes due to declining cognitive abilities and the specter of widowhood.
Those age 75 and older are projected to grow from 23 million in 2020 to 45 million by 2040. Eleven percent of people in this age group have difficulty performing basic activities of daily living, such as bathing and eating, and 19% have difficulty with more complex tasks, such as cooking or shopping. Furthermore, a woman age 62 today has a 20% chance of becoming a widow by age 75 and a 33% change of becoming a widow by age 85.
The Center for Retirement Research says that the typical household nearing retirement with a 401(k) has only $135,000 saved, which, if annuitized, would provide only $600 a month. However, nearly one-third of all households nearing retirement have no retirement savings. In addition, Social Security replacement rates are declining at any given claiming age due to the increase in the full retirement age.
The Center says that out-of-pocket medical costs for those age 75 and older eat up 20% of their income. The average household from their early 70’s on will incur $100,000 in total out-of-pocket medical spending, including long-term care.
The Center also says that financial skills tend to deteriorate for many in their 70’s. Nearly one in six seniors have reported losing money in a fraudulent investment scheme. In addition, tomorrow’s retirees will have fewer children to support them, and children are a primary source of financial management assistance.