Saturday, July 17, 2010

Retirement May Mean a Lifestyle Downgrade

With the baby boomers reaching retirement age, many of them are looking forward to settling into a nice, comfortable retirement. However, a new report from the Employee Benefit Research Institute suggests that more than half of these baby boomers are at risk of having insufficient funds to pay for the full extent of their retirement expenses.

Nearly half of older boomers -- those now aged 56 to 62 -- and some 44% of younger boomers -- aged 46 to 55 now -- are at risk of not having sufficient income to pay for basic retirement expenses and uninsured medical expenses, according to the study.

The study, which assumed that boomers would retire at age 65, also found that lower-income retirees are most likely to run out of money after 10 and certainly 20 years of retirement, while higher-income retirees are least likely to run out of money.

41% of those with the lowest income are likely to run short of money after 10 years of retirement, and 57% after 20 years. Meanwhile, just 5% of those in the highest income quartile will run out of money after 10 years, and 13% after 20 years.

So, what to make of this study?

Run out of lifestyle, not money

In reality, most Americans don't run out of money, they run out of lifestyle. As they age and spend down their assets, they typically reduce their living standard.

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