Many individuals who are nearing or are in retirement won’t be uttering the quote “Goodbye tension, hello pension!” anytime soon, if at all.

Only 52.4% of wage and salary workers ages 55 to 64 participated in an employer-based retirement plan in 2012, versus 62.6% in 2000, estimates the Employee Benefit Research Institute. Two-thirds of working households that age with at least one earner have retirement savings less than one times their annual income, according to the National Institute on Retirement Security.

The 2010 National Retirement Risk Index—calculated by the Center for Retirement Research at Boston College (CRR) and based on the Federal Reserve’s latest published Survey of Consumer Finances—showed 53% of American households at risk of being unable to maintain their preretirement standard of living in retirement, even if they work until 65 and annuitize all assets. Plugging in 2013 equity and housing prices, it falls to 50%. The 2007 index found 44% at risk.

“We’re not in as much of a hole as the dark days of 2009, but we’re still very much in a hole,” says Anthony Webb, Ph.D., a senior research economist at the CRR and a co-author of its report, Will The Rebound In Equities And Housing Save Retirements?

Although equity prices have risen dramatically since 2010, housing, which is more widely held, has seen only modest price gains, he says. Since 2007, the index has also been depressed by the gradual increase in Social Security’s full retirement age and lower interest rates.

Financial advisors also are finding that many clients are not saving enough for retirement, but overall they report a far greater percentage who are prepared than what’s seen in national averages. In a recent retirement survey conducted by Financial Advisor magazine, nearly 75% said that 60% or more of their clients between the ages of 50 and 65 are on track to meet their retirement goals.

Meanwhile, increasing longevity is a huge retirement challenge. Among today’s 65-year-olds, 59% of women and 52% of men will survive to 85, and 39% of women and 31% of men to 90, according to the Society of Actuaries. Fidelity Benefits Consulting estimated a 65-year-old couple retiring in 2013 with traditional Medicare coverage needs $220,000 to cover future medical expenses, nursing-home care excluded.

Many people are working longer to put themselves on a better financial footing. In a recent New York Times article, Alicia H. Munnell, director of the Center for Retirement Research at Boston College, said 18.9% of Americans 65 and over remain in the labor force, compared with 12 percent two decades ago.

She noted, however, that a far lower percentage actually keep working after 65 than the number who say they plan to do so. Advisors appear to be seeing the same pattern with their clients. In Financial Advisor’s survey, advisors reported, on average, that 77% of their clients age 55 and over plan to keep working until age 65 or later; however among clients who are now 65 and older, an average of only 31% still work.

Having kids later and elderly parents is also a strain. For example, people age 50 and older who exit the workforce to care for a parent lose, on average, nearly $304,000 in wages, pensions and Social Security benefits over their lifetime, according to a 2011 report from the MetLife Mature Life Institute.  

Moreover, the divorce rate among people age 50 and older doubled between 1990 and 2010, accounting for roughly one in four divorces in 2010, according to the 2013 report The Gray Divorce Revolution, from the National Center for Family & Marriage Research at Bowling Green State University.

This age bracket has also experienced the sharpest increase in mortgage debt, according to the 2012 report Nightmare on Main Street: Older Americans and the Mortgage Market Crisis from the AARP Public Policy Institute.

Reality Check
Still, people may not be worried enough about outliving their assets, suggests another report, The Retirement Income Solution Gap, published in January by Spectrem Group, a Chicago-based research and consulting firm. Among those it surveyed, 65% of working individuals who are contemplating retiring within three years expect to maintain their current lifestyle in retirement and 74% of retirees who have been retired more than five years disagree that they are living below the lifestyle they planned on. None of the households had defined benefit pension plans.

George H. Walper Jr., president of Spectrem, was surprised by the overall response and thinks people are overoptimistic from riding the recent stock market rally. “It’s kind of a little bit of a head fake,” he says. “If the market drops, they’ll probably be in a pretty bad spot.” He also thinks they may be underestimating their withdrawal rates and spending principal and income since interest rates are so low.

Drew Horter, president and chief investment strategist of Horter Investment Management LLC, a Cincinnati-based RIA that manages $740 million mostly for retirees and pre-retirees, says prospective clients generally have 60% to 70% of their assets in stocks and stock mutual funds. “They’re in that greed stage to get extra money for retirement,” he says. “They don’t understand the risk parameters.” Based on historic cycles, he thinks the stock market could see a correction. “If you’re close to two to three years to retirement or less, you can’t take that risk,” he says.

For its low risk/low volatility bucket, Horter Investment Management has swapped out stocks for high-yield bond funds with tactical overlays that let them move to cash or partial cash. The price movement of securities inside these funds is slower to react than stocks and the small-to-midsize companies that issue them tend to do best in an improving interest rate environment, he says.

Minoti Rajput, president of Secure Planning Strategies, a Southfield, Mich.-based wealth management firm that manages $254 million, has tried to help clients be extra cautious about capital preservation since the 2008 financial crisis. “Clients are facing life issues on top of the unknowns of fiscal policy and volatility,” she says. “The biggest concern is people living too long and outliving their money.”

Her eldest client had some money left when she died last year at 107 after spending eight years in a nursing home. Rajput, who met her in the early 1990s, helped her put aside money for her son and grandson who both have disabilities.

More than one-third of Rajput’s 330 clients have one or more children with special needs. We’ll meet one of them later in the article. She also works with many women who never handled their finances before being widowed or divorced. Other clients took lump-sum pension buyouts from the ailing automakers and don’t know how to manage it on their own. “They transfer their fears and concerns to us,” she says.

Another client’s husband developed Alzheimer’s in his late 50s while they were paying their children’s college tuitions. His nursing home cost $6,000 a month. Fortunately, she had a 401(k) plan, but she was forced to divorce him on paper so he could go on Medicaid. She visited him every day until his death several years later, adds Rajput.

She suggests all pre-retirees do annual cash flow statements and retirement expense forecasts. “The key question people need to ask themselves,” she says, “is whether they can afford to live as modestly as possible.” In general, she tries to help clients plan for annual withdrawals on their overall retirement portfolio of 4% in their 60s, 5% in their 70s.

She makes sure that at age 59½ clients use in-service 401(k) rollovers to move money to personal IRAs, since they offer more options for capital preservation that aren’t typically available in a 401(k) account.

Making It Last
“There’s a lot out there on save, save, save, but not how to take it back and make it last a lifetime,” says Joe Lucey, president of Secured Retirement Advisors LLC in St. Louis Park, Minn. Some 75% to 80% of the RIA’s 300 clients are retired or semiretired.

He often uses life insurance and fixed annuities to help clients fill in the gap on retirement savings. Annuities have been especially helpful, he says, for those who’ve lost a spouse or have big medical expenses. “It’s transferring risk—the same thing we do every day with homeowner’s insurance,” he says.

He also helps clients explore whether to take Social Security early or to delay it to maximize the benefit for oneself or a surviving spouse. “You have to disconnect your retirement date from your Social Security decision,” he tells them, and “Think we, not me.”

Lucey’s clients have faced a variety of retirement curveballs. One man who lost his job and was unemployed for some time is now returning to work at age 60.

Webb, of Boston College, says working at age 55 to 65 is often critical for having enough money in retirement. “Involuntary job loss for older workers is a mercifully somewhat unusual event,” he says, “but when it does happen, the consequences can be serious.” If laid off, it’s harder for them to get back into the labor force than younger workers.

Research from various sources also shows more people plan to retire later. “I would hesitate to go into a town in West Virginia and tell miners in a bar that they should work to 70,” he says, “but for many other jobs, I think that’s really good advice.”

Working longer is advocated by Melody Juge, an investment advisor representative with Southfield, Mich.-based CoreCap Investments Inc. and president of Juge Girls, a newly launched social network aimed to empower women to take greater control of their finances. “I don’t think anyone should retire or start collecting Social Security at age 62,” she says. “You don’t know what may happen down the road, and longevity is an issue for women.”

She encourages people to explore ways to earn a living doing something that requires little or no overhead, such as pet sitting, and to re-evaluate how they spend money to help family. One couple she knows researched social programs to help pay for the personal-care needs of the husband’s 92-year-old mother. They also housed and fed their son’s family when he was unemployed for 18 months but didn’t raid their savings to cover his other expenses.

Up Close
Phyllis Dircks, a 78-year-old with chronic obstructive pulmonary disease (COPD) and asthma, lost her husband suddenly last year. The couple had a fixed-index annuity and universal life insurance. “He said, ‘You can’t take care of yourself, I can,’” she says. “That’s why he took the policy.”

After his death, income riders on the policy were elected to turn on income streams that helped cover the loss of his pension and her extra expenses, says Lucey, their advisor for about seven years. Dircks, who uses oxygen and can’t be around stoves, moved to an assisted living facility right after becoming widowed. She says it costs $3,605 per month. “That’s just being here, some cleaning and two meals a day,” she says. “It adds up quite fast when you’re not used to it.”

Dircks says she is grateful for Lucey’s help and his frequent communication with her and her daughter, who now handles much of her finances.

Pediatrician David Mandy, 67, hopes to step back a little from his practice at 70 when a new doctor joins him. He enjoys working but also has other incentives to keep at it. He and his wife, longtime clients of Rajput, have three adult children with severe seizure disorders. Their daughter, 39, and older son, 34, have learning disabilities. Their younger son, 31, is severely mentally impaired and needs complete care. “He is our angel boy,” he says.

The Mandys want to have enough money to assist their children and enable their sons to always remain in the family home. Their daughter, who is married, lives nearby. They are looking into agencies that can care for their sons and house when they no longer can. They must figure out how to pay for the ongoing expenses of the house’s upkeep and property taxes.

Originally, Mandy didn’t have much money to put away for retirement. Now he has a universal life insurance policy with a no-lapse guarantee to fund his children’s special needs trusts. Rajput says the Mandys’ annual savings are typically divided evenly into their IRAs, their children’s trusts and the policy premiums (which will be paid off when he is 70).

Mandy, a Boy Scout leader for his older son and a Special Olympics coach, says Rajput provides “invaluable” investment and ancillary advice, especially in the area of special needs planning. He talks to the parents of his many handicapped patients about the importance of proper planning. And his family? “We are kind of frugal,” he says. “We don’t fly to Europe, but we take a Disney vacation every once in a while.”