By Anna Andrianova, MarketWatch
Last Update: 12:01 AM ET Jul 31, 2012
NEW YORK (MarketWatch)One third of people close to retirement said they dont know how much money they will need to cover basic expenses in retirement, according to a new study.
Soon-to-be retirees also are concerned about medical expenses and being able to cover basic needs when they retire, the survey found. Other worries include the potential hit to their savings from market fluctuations, and the risk of outliving their income, according to the survey of 1,000 U.S. residents aged 55 to 65, by Allianz Life Insurance Company of North America.
Most retirement savers concentrate on the accumulation phase, and put off planning for retirement, said Katie Libbe, vice president of consumer marketing and solutions at Allianz Life.
Its time to get real about retirement. That is something that you are headed toward whether you like it or not, she said.
Work longer? Maybe
Some people hope to make up their savings shortfall by working longer, Libbe said. But, she said, You dont always get to control when you retire. There are layoffs and downsizing. People get sick and cant work anymore.
Libbe said that 10 years before your planned retirement is a good time to readjust your strategy and evaluate where you are and what you need for retirement.
A top concern for near-retirees is health-care expenses. Thirty-two percent named it as their biggest retirement concern, according to the survey, followed by worries about not being able to cover basic living expenses, and wealth fluctuation.
The near-retirees also underestimated the impact of inflation and taxes on their retirement. Just 10% named inflation as a top concern and 6% identified taxes as their main concern.
People are living longer now and it actually makes all the other risks worse. If you live longer, inflation eats away more of your cost of living and lifestyle. If you live longer, you will see more market volatility, Libbe said.
To gauge their understanding of inflation, survey respondents were asked to forecast how much a loaf of bread will cost 10 years from now, in 2022. They were told that a loaf cost $1.10 in 2002 and averages $2.50 now.
While 75% correctly predicted the future price of $5, another 25% demonstrated unfamiliarity with inflation and the effect it has on their future purchasing power. Of the 25% who got it wrong, 8% said the loaf of bread would cost $2.75, another 13% said it would cost $8.25, and 4% said the price would spike to $10.05.
We have been living in a low-inflation environment and people put it on a back burner. But even an inflation rate as low as 3% can kind of double a cost of loaf of bread over 25 years, said Libbe.
Counting on Social Security
More than four-in-ten near-retirees said they would wait to plan their retirement-income strategies until they are five years away from retiring. Another 42% said they would start planning those strategies when they are more than 10 years out, and 15% said five to 10 years before retirement is an appropriate time frame to start planning.
Most of the respondents said they expect Social Security to be their main source of retirement income. Thirty percent of respondents said they expect part-time work in retirement to provide an additional source of income
Forty-three percent of the survey respondents said they would tap a workplace savings plan as a source of retirement income, and nearly six-in-ten of the latter have sought financial advice about what to do when they retire.
There are many different strategies to create retirement income, as well as tax implications and asset allocation, that a financial adviser can discuss with a near-retiree, Libbe said. But for people who dont have an adviser, she suggested focusing on paying off all debt, or at least to have as little debt as possible. She also suggested saving more and cutting down on luxury expenses now, so you can enjoy your savings in retirement.
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