Of the 1,213 pre-retirees ages 56 to 65 who took MetLife’s 15 question quiz, the majority answered five of the 15 questions correctly, leaving persistent misperceptions and misunderstandings in a number of areas, such as life expectancy, inflation, retirement income/savings, long-term care insurance, and Social Security. In 2008, most respondents correctly answered six of the 15 questions.
One positive note was that respondents are recognizing that they will live longer and that they will be dependent on Social Security and other steady lifetime income for their prolonged retirement. An increased number of respondents feel Social Security and Medicare are more important compared with five years ago (45% in 2011 versus 33% in 2008), and 45% of those surveyed said they are likely to work longer than previously planned. However, only 17% knew that delaying the collection of Social Security by three years would add 24% to the amount they receive.
Forty-five percent knew that experts believe retirees will need 80%-90% of their pre-retirement income to maintain their current standard of living. Nearly three in 10 (29%) respondents believe that retirees should withdraw from their savings each year to 7%-10%, and 11% believe they should plan to withdraw between 11%-15%. In reality, experts recommend limiting the percent retirees withdraw from their savings each year to 4%-6 %.
Other key findings from the study include:
- Sixty-two percent of those surveyed in 2011 realize that the greatest financial risk facing retirees is longevity, compared with 56% in 2008 and 23% in 2003.
- When asked about concerns during retirement, the most common answer was having enough income to cover essential expenses (32%), followed by the ability to afford health care (18%).
- The majority (87%) of respondents have taken steps toward ensuring adequate income for retirement, such as increasing their contributions to retirement plans or extending their working years. Just under two-thirds (62%) of them are currently seeking financial product advice.
- More attention is being given to products such as reverse mortgages, but there is still a general lack of understanding. Almost one-quarter (24%) correctly identified that a reverse mortgage is accessible only to homeowners age 62 or older, but more than half (54%) were unaware that a reverse mortgage can be used to purchase a primary home.
- Forty-two percent of respondents incorrectly believe that health insurance, Medicare, or disability insurance will cover the costs of long-term care.
The respondents' average estimate of what a couple would need in pre-retirement income to cover their essential living expenses (i.e., housing, food, health care, transportation, insurance and taxes) was 61%, very close to informal estimates that about 60% is needed to take care of the absolute basics. Yet, the biggest concern expressed was having enough retirement income to cover them.
"Everyone knows they're likely to live longer, but most don't realize that can mean living past age 85 and they fail to calculate how much money they will need for a steady and lasting income," said Sandra Timmermann, Ed.D., Director of the MetLife Mature Market Institute. "The 'replacement ratio' of the percent of pre-retirement income necessary to manage essentials, including basic expenses, in retirement is often underestimated and too many people overestimate how much of their savings they can safely withdraw each year. Employers and others advising Americans should be helping pre-retirees to 'connect the dots' so, given the uncertain economic climate, they can have a clear picture of their prospects and the financial income strategies needed."