Older Americans more often than not rely on gut instinct rather than careful financial planning to decide when is the right time to give up work and end up finding retirement a great deal more expensive than they had anticipated, according to a new study.
Six focus groups of people aged 60 to 72 by the U.S Society of Actuaries, and published by the Society for Human Resource Management, has warned of a remarkable lack of forward planning by prospective retirees.
The vast majority, the focus groups found, had retired within the past 10 years, and well before the age of 65, with almost none of them finding their retirement income and expenses panned out as they had expected.
The majority retired in their late 50s, sooner than most had planned. The reasons for this were varied: ill health or disability, because they were forced out of their jobs, others simply because they felt "burned out" or were offered generous severance packages.
There was also an element of societal pressure in some cases, with people feeling they had simply reached the age where it was deemed socially appropriate to retire or when their parents retired.
Many said they based their decision to retire on a "feeling" that they could afford to meet their monthly expenses.
Yet many found that, rather than cutting back, they were now spending more than they did before retirement, often on expensive hobbies, eating out, rising fuel bills and increasing health costs.
They also had "significant" misconceptions about their longevity and long-term impact of inflation on the costs they were likely to face as they aged, the study found.
One man, the study highlighted, had developed a 20-year projection of expenses and cost of living before retiring but made one major mistake Ė underestimating the cost of prescription drugs. Rising energy costs were frequently overlooked as well.
Although high medical and long-term care expenses were their two biggest concerns, these were the two factors that the participants had contemplated the least when deciding when they could retire, the study found.
Few used financial advisers before retiring Ė with many thinking they could do a better job than the ones they have met or they see using an adviser as giving up some financial independence.
Just as worrying, most took out money "as needed" rather than budgeting how much they needed to withdraw monthly.
Not one person retired after reaching a predetermined savings goal that signalled they could afford to retire, the study found.
Most based much of their financial behaviour on instinct rather than establishing long-range goals or developing a detailed analysis of how they should invest and spend.
While this approach may have worked when they were employed and could foresee major expenses such as purchasing a home, the study warned, "finances in retirement are more complex, mainly because of the uncertain timing of death and the increasing possibility of large unanticipated expenses".
The "one bright spot," the study found, was that almost everyone in the focus groups owned homes that were paid off or nearly so, and they had no plans to use the equity in their homes.
Many of those in the focus groups felt financially secure and enjoyed comfortable "but not overly affluent" lifestyles that they supported through "somewhat conservative" investing and by having little or no debt, it added.