Retirement Profiles: One Size Does Not Fit All

Ted Godbout

When it comes to the lifestyle path that retirees navigate, one thing is clear: There is little homogeneity, according to a new study by EBRI that identifies five distinct retirement profiles. 

In “Retirees in Profile: Evaluating Five Distinct Lifestyles in Retirement,” Zahra Ebrahimi, Research Associate at EBRI, reports there is great diversity in the way people live in retirement based on financial status, retirement goals, demographics and spending habits. Affluence, however, does not necessarily reflect the lifestyle path that retirees choose, the study found. 

Based on a survey of 2,000 retired households aged 62 to 75 and with less than $1 million in financial assets, EBRI developed a series of retiree profiles based on financial status, including retirees’ financial assets, annual income, debt and homeownership, as well as spending-behavior factors. 

From there, the research identified distinguishing characteristics—demographics, retirement income, health insurance, long-term-care coverage and spending patterns—of the retiree profiles. EBRI also examined the spend-down strategies and plans used by each type of retiree, as well as how retirees of different types rated their retirement life satisfaction.

Consequently, five retirement profiles emerged from the survey results: Average Retirees, Affluent Retirees, Comfortable Retirees, Struggling Retirees and Just Getting by Retirees.

Average Retirees (28% of the sample) were more likely to report low levels of financial assets ($99,000 or less) and mid-levels of income (between $40,000 and $100,000, annually) at 58% and 74%, respectively. They are more likely to be married than not, and they report good health status on average, EBRI notes. Just over half believe they saved enough or more than enough for retirement, while 6 in 10 seek to maintain or grow their financial assets in retirement. The majority tend to believe that their standard of living in retirement is unchanged from their working years, and they rate their level of satisfaction as 7.8 on a scale from 1-10.

Affluent Retirees (19% of the sample) were more likely to report high levels of financial assets than any other group, with 58% doing so. However, 30% reported intermediate levels of financial assets, and 12% reported low levels of financial assets. Most were homeowners, with 76% reporting owning their home mortgage free and only 20% reporting a mortgage. 

Most (61%) reported having no debt, while those with debt generally described their debt as easily manageable. The majority think their standard of living remains unchanged from their working days, and nearly a quarter think their standard of living has increased since retirement. On average, retirees in this group were the most satisfied with their retirement of all retiree groups.

Comfortable Retirees (22% of the sample) reported intermediate or high levels of financial assets (41% and 37%, respectively) and intermediate or high levels of annual income. Just over half (53%) owned a home without a mortgage, while 37% owed mortgages and 9% rented. While most (63%) did report having debt, two-thirds with debt described their debt as either easy to manage or negligible. 

In this group, more retirees cited workplace retirement savings plans such as 401(k)s and IRAs as their major source of income than any other group, in addition to Social Security. Most think their standard of living has not changed since their working years, yet one in four believes it has declined. These retirees were on average the second most satisfied with their retirement life after the Affluent Retirees. 

Struggling Retirees (18% of the sample) were characterized as having a low level of financial assets (98%) and most (73%) had low levels of income. More than 4 in 10 (44%) of these households had rental homes, greater than any other group, and just 25% owned a home free and clear, while 28% had a mortgage. Only 19% did not report debt and 20% described their debt as unmanageable or crushing, which was the highest percentage among all groups. 

Female respondents comprised the majority of respondents in this group, and most were from non-coupled households, the study notes. Over two thirds had no or some college education, and they also rated their health status as the worst out of all groups. Three-quarters believe they had saved much less than was necessary for their retirement, and from those who have a financial account, most intend to spend down their accounts to zero or to a significant extent.
 
Just-Getting-By Retirees (12% of the sample) are low-income retirees (91%) with low levels of financial assets (73%). While more than half (51%) own a home with no mortgage, 17% own a home that has a mortgage and 30% reported renting their home. One in two reported no debt and most of those with debt described their debt levels as easily manageable/negligible.

EBRI notes that the demographics of this group corresponded to the Struggling Retirees group, with more female respondents in this group than men, nearly two-thirds coming from a non-coupled household, and only 30% having a college education or higher. In contrast to Struggling Retirees, however, half believed they had saved enough for retirement, while the other half is split between those who think they have saved a little less or much less than needed.  

“Creating retirement profiles allow us to make sense of the behavior and trends that most influence retirement outcomes,” says Ebrahimi. “For instance, those with no debt or manageable levels of debt, as well as those who owned their homes free from mortgages were more likely to have a better retirement outcome across all measures.”

As such, EBRI emphasizes that accounting for each of these issues has implications for plan sponsors and advisers, ranging from the type of retirement products offered, to providing necessary tools and education for retirees to manage their assets in retirement.