Retirees are prone to disruptive late-life financial risks as life expectancy grows, including widowhood, financial mistakes attributed to a decline in cognitive abilities and high out-of-pocket healthcare expenses. This, according to a new brief released by the Center for Retirement Research (CRR) at Boston College.
While currently-available research literature indicates that these kinds of financial difficulties only currently severely affect a minority of retirees, this CRR brief suggests that the impact of these issues could grow more widespread in the future.
“The situation is generally expected to become more challenging, because future retirees will be more reliant on often-modest 401(k)/IRA lump sums rather than the automatic lifelong payment stream of a traditional pension plan,” the brief reads. “At the same time, a rising Full Retirement Age means monthly Social Security checks will provide less relative to pre-retirement income at any given claiming age. In short, future retirees will likely have less reliable income as they reach advanced ages.”
One of the primary demographic shifts that could cause these difficulties to become more pronounced is that the population of retirees aged 75 and over is expected to grow to more than double its current rate by 2040, according to data from the United States Census Bureau made available in the brief.
The two reasons the brief offers for the importance of understanding the higher financial risk to seniors is twofold. “The first reason is that physical and mental health problems become much more pronounced at these ages, meaning that people run the risk of draining their savings through high out-of-pocket medical costs or financial mistakes,” the brief reads.
“The second reason is that people will increasingly face these challenges with 401(k)s, which provide lump sum assets that may be hard to manage with age, especially since initial balances tend to be modest.”
The brief reviews data compiled through the research of the United States Social Security Administration’s Retirement Research Consortium and others.
Read the full brief for more information.