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Using SOA Research Institute Consumer Research and Consumer Resources: Part 2—Key Findings at Different Life Stages

By Anna Rappaport

Retirement Section News, October 2024

Photograph of middle-aged male facing camera, sitting in living room holding and reading a piece of paper.

Building on the research done by the Committee on Post Retirement Needs and Risk, which started in 2002, the SOA Research Institute’s Aging and Retirement Strategic Research program has conducted a variety of consumer research projects to learn what consumers know and how they plan for and manage retirement planning. This article is the second in a series of three articles that offer insight into where consumers are today. This series identifies gaps in understanding, planning, and managing retirement issues. It helps us understand how consumers act at various life stages, highlights consumer information collected by the SOA Research Institute and provides some recommendations for working with different stakeholders to improve retirement planning. Part 1 identifies the components of the research and provides a summary of major findings with regard to gaps in knowledge and planning. This article, Part 2, provides a discussion of key findings with regard to individual actions at different life cycle stages. Part 3 will provide an inventory of consumer information and reports that summarizes 25 years of research by topic and some ideas for moving into the future.

Series Overview: This article series offers a concise summary of an extensive body of work focused on improving retirement planning and management. A repeated finding from this work is that individual actions fit patterns that are different from what the planning methodologies and professional advisors believe they are or should be, creating gaps and significant opportunities to help improve retirement planning and management, particularly since individuals have so much responsibility for their own financial security.

Using the Series: SOA research and resources should be valuable to consumers, financial advisors, and practicing actuaries in light of the current focus on Defined Contribution (DC) plans. They should also be valuable to individuals planning for themselves and their families. Actuaries are encouraged to share these resources with others in their communities and highlight that they are provided by the Society of Actuaries (SOA).

The Big Picture and How the Studies Link Together

Emphasis on post-retirement risk research started in the mid-1990s with the realization that planning for retirement was about more than building resources, reaching retirement age, and managing investments. Post-retirement risks were identified, some of which were generally not considered in planning and modeling. Information was collected about how they were modeled and how assumptions were set, and it was clear there was no professional guidance about how to construct models or set assumptions for some of these risks. The Pension Research Committee realized that there were many unanswered questions, including how individuals viewed the risks. That led to consumer surveys, focus groups, interviews, and new insights. New insights raised more questions. A new task force was established to focus on planning for and managing retirement during the payout period. This led to a series of focus groups at different life stages ranging from people who had recently retired to the end of life.

The initial surveys covered people nearing retirement and retirees. A focus on change during retirement led to further exploration through focus groups and interviews to determine how people think based on elapsed time since retirement. In 2018, the SOA broadened its work and did a survey of retirement and financial attitudes across generations, and then in 2021 it did a second generations survey. The focus of the program expanded from looking at the use of resources and dealing with change in retirement to building up of resources for retirement. This led to the recent focus groups for ages 35–45.

2013 focus groups (individuals retired less than 10 years): There were two sets of findings in this work: How and when people retire and how they managed their finances in retirement. There were surprises in both sets of findings. The key findings are discussed in the report and a few highlights included in this article.

Questions raised by 2013 research: The method of managing finances in retirement caused concern among the SOA research team and raised more questions. The focus group participants indicated they did relatively little longer-term planning and had an expectation that they would deal with unexpected expenses as they happened. The focus groups also provided a message that there was a preference to reduce spending rather than spend down assets. This led to the team asking the question: How will this work out in the long run?

2015 focus groups (individuals retired 15 years or more): The unanswered questions and unexpected responses led the SOA to the next set of focus groups. The goal was to see whether the strategies people had used earlier in retirement were working out, and to understand the impact of a variety of shocks and unexpected expenses on the retirees. Overall, these retirees were doing better than expected and they seemed resilient and able to deal with a variety of uncertainties. Some shocks (especially multiple shocks) were more likely to cause more trouble than others. This led to the team to ask the question: Are things likely to go bad later in retirement?

Research with people age 85 and older: The research goals were to see what had changed, how the households had changed spending, how they were doing with their finances, what types of help they needed, and where and how family fit in. Even though many in the group had limitations, the group overall seemed to be flexible, resilient, and doing pretty well with the exception of people needing substantial paid long-term care. People who lived independently without significant cognitive difficulty did not appear to change the way they managed their money. However, once people experienced major illness or cognitive decline, everything changed. These individuals often needed help with money management, driving, taking medication, and other aspects of life. The studies and collected experience with this age group are summarized in the report, “Retirement Experiences of People Age 85 and Over.”  There are not many studies that cover this age group, and many people are not aware of or do not consider the special issues that arise late in life or plan for them.

Research with children of deceased parents: This was the last step in a focus on the total retirement period and led to two reports on how families cope with the final years of life. The first report summarizes interviews with the children of recently deceased parents. The second report summarizes an online survey exploring these issues further. The families studied were related to people who died at age 85 or older, lived in a variety of settings, and had asset levels consistent with the prior study. The issues studied included end of life planning and how the family coped with the situation.

A shift to thinking about all generations: The next step was to explore building resources for retirement. In the second generations survey, the SOA focused on Gen X, and a special report discussed why Gen X seemed to be less prepared for retirement than the group before them or the group after them. The implementation of the long-term shift to defined contribution plans also means that each cohort will be more dependent on its own savings and management of retirement resources than the prior group. The SOA decided to do focus groups with individuals ages 35–45. Those focus groups and the generations survey provide insights into the challenges facing midlife employees today.

Each of these studies have helped inform future work, effectively building on each other, which has allowed for aggregated results to provide additional insights.

How Financial Strategies Worked Out: Shocks and Unexpected Expenses

The focus groups and follow-up surveys with individuals retired 15 years or more found generally consistent financial strategies when compared to what was learned from individuals retired less than 10 years. The research explored shocks and unexpected expenses to learn how well the retirees dealt with reality. The findings also illustrate the impact of a failure to plan for the long term. Key results included:

  • Most long-term retirees coped well with managing their finances during the first decade and a half of retirement.
  • Some had to make cutbacks in their lifestyles: A number stated they have gone from satisfying “wants” to satisfying “needs.” But those who have had to make that transition have accomplished it with resilience and not bitterness.
  • Some have experienced financial shocks, but most shocks have been absorbed and adjusted to well. Many, particularly those who have experienced multiple financial shocks, have had to make significant cuts in their spending.
  • The financial consequences of a lack of planning for single events tend to be small, with a few notable and important exceptions.
  • This research found that some financial shocks often cannot be absorbed and adjusted to, including needing long-term care, having an adult child that cannot support him or herself, and divorce during retirement.
  • The death of a spouse who needed little or no long-term care did not cause a major drop in asset levels.
  • Health and cognitive decline issues were more difficult to cope with than financial issues.

It should be noted that the research with regard to shocks was conducted during a period of relatively low inflation and also during a period when more private sector retirement plans provided defined benefit income.

Surprisingly, retirees did better overall with shocks than expected and showed resilience. Results of the different studies showed consistency in the way retirees were thinking and dealing with issues. The shocks mentioned most often by retirees, including home repairs and dental expenses, were unexpected but not perceived as significant by the research group. It was no surprise that a major long-term care event would lead to asset spend-down.

Key Findings: Midlife Individuals Building Resources for Retirement

Differing results by economic status: The two generations surveys and focus groups provide insights into mid-life individuals preparing for retirement. One of the important findings at all ages was that there are differences in results based on economic status.

Financial fragility as a barrier to retirement savings: Each of the generations studies included a group of financially fragile individuals whose life circumstances and/or habits were a barrier to retirement savings. Their life circumstances vary, and some may have included:

  • Being unbanked or underbanked. Some individuals live in areas where there are no major banks and where the “retail financial institutions” are check cashing offices and pawn shops. They may have no knowledge of and little contact with established banks. Others do not trust banks, particularly if their families did not trust banks.
  • Living paycheck to paycheck because wages are too low to provide needed services for daily life. Food-insecure and housing-insecure individuals are unlikely to save for retirement. While some people may be able to budget and manage expenses down, others simply need to earn more money.
  • Carrying substantial debt, particularly high-interest debt. They may need to get debt under control to achieve stability.

Individuals with minimal earnings may depend on government benefits with little expectation that they will save on their own. They are also less likely to have employer provided benefits.

The focus groups with ages 35–45 showed that some of the same factors affecting retirees also affected them. They showed some findings that differ, which provide insights to what issues might need to be addressed to improve savings.

Bringing Together the Findings: Defining Financial Strategies

The series of focus groups and interviews with retirees provided insights into commonly chosen financial strategies during retirement.

  • Participants were very aware of their regular income and expenses, and they managed expenses based on their estimated recurring expenses. Planning was generally focused on expected cash flow in the next few years. They typically did not allow or plan for extraordinary expenses such as roof replacement, car repair or large medical expenses.
  • They were, however, very adaptable with regard to spending decisions and willing and able to reduce spending when needed.
  • The major strategy for retirees managing their assets was to try to preserve them. Most did not have a plan to systematically withdraw assets from their retirement accounts. The legally mandated Required Minimum Distribution rules were often used to withdraw funds from their individual retirement accounts.[1]
  • People wanted to hold on to their homes and home equity as long as possible.
  • Family is an important factor in retirement. Some participants have helped and are still helping family members.
  • Most retirees wanted to be independent and did not intend to rely on family if they need help themselves. However, family often steps in when help is needed.
  • The focus group members for the most part did not explicitly plan for shocks and longer-term risks. Their risk management strategies appeared to be asset preservation, limiting debt, and controlling spending. They did not focus on financial risk management products, and many were not well prepared to deal with substantial shocks. A few had long-term care insurance, but there was no information about its adequacy.

Conclusion

Consumer research demonstrated that the reality for many retirees is far different from the life cycle models assumed in the development of planning software and some planning systems. There is an increasing recognition of the importance of meeting people where they are. At each life stage, there are people with a range of economic and household situations. Employee benefits, personal planning tools and other supports for retirement planning and management will only work well for a wide range of households if they are adaptable to dealing with unique situations applicable to each household.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the newsletter editors, or the respective authors’ employers.

Anna M. Rappaport, FSA, serves as chairperson of the Committee on Post-Retirement Needs and Risks. She can be reached at anna.rappaport@gmail.com.

Endnote

[1] The RMD requirement was changed to 72 in 2020 as part of the SECURE Act.