Retirement planners constantly remind their clients that they must take steps to avoid outliving their money, but does anyone ever check to see how often that happens? The Employee Benefit Research Institute (EBRI) does.
In A Look at the End-of-Life Financial Situation in America, Dr. Sudipto Banerjee of the EBRI examined the end-of life assets in 2010 for households with a member that passed away between the 2010 and 2012 EBRI surveys. Using data from EBRI's Health and Retirement Study, Dr. Banerjee focused on the percentage of those who died effectively broke, with either no non-housing assets or no assets at all and living off of whatever income was available (primarily Social Security).
For those who passed away at age 85 or above, slightly over one in five (20.6%) died with no non-housing assets and 12.2% had no assets at all. Considering assets of $10,000 or less at death, the percentages rise to 42.9% and 23.0% respectively.
Those in the younger age group of 50-64 who passed away were even more likely to die without assets. The study showed that 37.2% of decedents in that age group had no non-housing assets (29.8% with no assets at all), compared to 25.3% of decedents from ages 65-74 and 18.5% between ages 75-84. This makes some degree of sense — if you died younger and in the high-earning years at the end of your career, you had less time to accumulate assets and might have still been paying off debts.
In every age group, those who died single were far more likely to die broke. Almost one in four singles over age 85 died with no non-housing assets (24.6%), compared to 11.4% for couples. For those dying with no assets at all, the percentage changes to 16.7% and 1.8% respectively. The discrepancies between singles and couples are even wider in the other age groups.
Having no liquid assets to work with, these seniors were highly dependent on Social Security to deal with their expenses. The survey showed that for those aged 85 and older, the average income was near $25,000 with a heavy dependency on Social Security. For singles, 67.1% of their income came from Social Security; for couples, the Social Security component was 61.5%. That dependence was even greater between ages 75 and 84, with 74.4% of income from Social Security for singles and 66.2% for couples.
A significant percentage of the decedents were also dealing with debt. For single decedents aged 85 or older, 9.1% passed away with debt, with the average debt at $6,368. For couples, the numbers were 14.9% and $7,800.
Single decedents over age 85 that did have housing assets left behind an average of $83,471 in net equity in their primary home, compared with $141,147 for couples.
While it sounds terrible to think that 20% of the elderly die broke, could any of this be by design? Data presented by HSBC shows that 23% of Americans of working age plan to spend all of their money in retirement and let their children make it on their own. That is not just an American phenomenon. The global average among the countries studied was 21%, ranging from 12% in Mexico to 28% in Hong Kong.
Realistically, people want enough money to live on comfortably even as they spend down their assets, and the survey verifies that Social Security is a critical component of these seniors achieving their goals.
As the study concludes, follow-up research is needed to answer a critical question and assess how well retirement planning is working — exactly when did the decedents run out of money? How many months were seniors forced to get by just on Social Security? Expect future studies to dig into that aspect to help guide retirement advice and policy on Social Security and other senior benefit systems.
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