Perspectives in Retirement Risks and the Individual

Presented at the session, “Retirement Planning: Public Knowledge, Decision-Making, and Psychology,” at In Search of Retirement Security: The Changing Mix of Social Insurance, Employee Benefits, and Personal Responsibility, the 16th Annual Conference of the National Academy of Social Insurance, January 22-23, 2004, in Washington, DC.

The US retirement system has shifted to one where individuals bear more responsibility for accruing assets for retirement. With the prevalence of lump sum distributions, many people must manage their funds throughout the retirement years. This paper summarizes research on retirement risks and public knowledge. It examines both pre- and post-retirement risks, identifies the range of risks, and explores changing patterns in retirement. A case study, illustrating how risks are intertwined, is also included.

Changes to the pension system have shifted considerable amounts of risk from employers to employees. Employers assume a great deal of retirement related risk under the traditional defined benefit plan, which provides a regular fixed monthly retirement income linked to salary and longevity on the job. In the future, defined contribution plans will be more common and individuals will be largely responsible for managing their investments and the related risks. The amount of money available for retirement will depend on the performance of these investments.

Many people expect to work longer to accumulate adequate funds for retirement. Studies show, however, that this strategy may not be realistic for a variety of reasons, including health-related issues and job loss.

This paper primarily draws from two major studies. It identifies significant gaps in public knowledge and understanding about successful planning for retirement, including the need for savings and investment plans. These gaps, as well as choices made, impact the retirement security of large numbers of people.