Retirees hit by “longevity risk”

Experts say millions of middle- and upper-class retirees across the country face mounting insecurity due to exposure to stocks instead of “safe money” investments like short-term bonds and fixed annuities.

Many were lured into the equities because they offered a chance to double their money from 2003 to 2008. Others face foreclosures because they over-borrowed against their homes before the U.S. housing meltdown.

“Probably half our clients are retired and yes, we have a lot of very worried, concerned clients,” said Peggy Cabaniss, president of HC Financial Advisors in Lafayette, California.

“Their leading concerns are, No. 1, that they’re going to run out of money,” she said.

Like the American Psychological Association, Cabaniss said she tells her clients not to get caught up in blow-by-blow media reports about swooning markets and dour economic news.

“The way things are presented it sort of sounds like and feels like the end of the world,” she said.

But avoiding bad news is tough when it affects life savings and people’s retirement security hangs in the balance.

Ghilarducci and Alicia Munnell, director of the Center for Retirement Research at Boston College, say the erosion of retirement savings due to stock declines is something that should be triggering alarm bells.

The United States is the only developed, industrialized and democratic country in the world where traditional pension plans with a nearly guaranteed stream of income are being replaced by 401k plans, in which retirees bear many risks from volatile market investments, Ghilarducci said.

“It’s disastrous,” she said, referring to the outlook for retiring or soon-to-be retired “baby boomers.”

“Late boomers will fare far worse than their parents and grandparents in terms of replacing their income in retirement, mainly because of the erosion in the employer pension system,” Ghilarducci said.

“It highlights the flaws in our retirement income system,” said Munnell.

“The idea that we have people increasingly and solely dependent on accounts which vary with the ups and downs of the stock market just doesn’t make for a very sensible retirement arrangement,” she added.

“My view is that it was always going to take the real suffering of a whole cohort before anybody was going to be willing to do anything to improve the retirement system. And I think the financial crisis may have accelerated that process.”

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