Almost three out of five middle-class new retirees in Maryland will likely outlive their financial assets if they try to maintain their pre-retirement standard of living, a new study reports.
The study, conducted by Ernst & Young on behalf of Americans for Secure Retirement, also finds that new retirees in Maryland would have to cut back their standard of living on average by 20 percent to reduce the likelihood of outliving their assets to only a 5 percent failure rate.
With fewer workers having guaranteed sources of retirement income, like pension plans, households approaching retirement in Maryland face increased longevity, investment and inflation risks.
“Many Americans envision a retirement where their lifestyle continues much as before,” said Tom Neubig, the study?s author. “Our work shows that this is not a realistic expectation and that, with the current state of savings and potentially very long life expectancies, many retires will have to cut back far more on expenditures than they had ever expected.”
Those Marylanders seven years out from retirement are even less prepared, as almost three-quarters of Maryland residents near retirement can expect to outlive their assets, according to the study.
Near retirees would have to reduce their standard of living on average by 33 percent to reduce the likelihood of outliving their money.
“Our concern is that people underestimate how much they need to save,” said Joe Reali, chairman of Americans for Secure Retirement. “We have a retirement crisis in this country.”
The study finds that retirees are better prepared to have a financially secure retirement if they have a guaranteed source of retirement income beyond Social Security, such as an annuity or defined benefit plan.
Reali endorsed The Retirement Security for Life Act, legislation currently before Congress, which would encourage Americans to have a steady source of guaranteed income in retirement by providing a tax incentive for lifetime annuities.
The legislation would exclude 50 percent of the income received from a lifetime annuity from taxation, up to $20,000 per year. For an average American taxpayer in the 25 percent tax bracket, this would result in $5,000 of tax savings.
“Life annuities are the only vehicle besides pensions and Social Security that provide a steady stream of income for life ? a ?paycheck for life,? ” Reali said.
