Retirement Decumulation: The Audience

At-Risk Middle America

At-Risk Middle America is a diverse population stretching across all cultural and socioeconomic categories, with annualized incomes generally between $30,000 and $100,000. There are tens of millions of At-Risk Middle American households within the middle class, perhaps as many as half of all households in the United States. Many of them are about to enter or have entered retirement with low savings levels. And with retirement now lasting on average well over 20 years, At-Risk Middle American households have neither the financial resources, preparation, support systems, nor protections to carry them through the rest of their lives. Many have been so focused on accumulating money that they haven’t even begun to think about how they’ll draw down, or decumulate, their assets. Left unchecked, this situation will result in many millions of formerly middle-class Americans struggling to live for decades primarily on their Social Security checks. 

In this context, being at-risk means that these consumers do not typically seek the advice and guidance of a qualified financial planner. This audience believes that financial planning is either not needed or is an unaffordable luxury. Furthermore, At-Risk Middle Americans are largely overlooked when it comes to retirement issues—they are not on public assistance, but they make less than the mass affluent. Many have limited assets, and most have undersaved. This makes them especially vulnerable—even one bad financial decision, wrong choice, or unforeseen event such as a serious illness or major home repair could have devastating effects. What further defines these Americans as a national at-risk priority are four complex social, financial, and behavioral characteristics that together represent a serious threat to their retirement years.

Debt and Spending Pressures

Financial planners are well aware that fewer than 20 percent of America’s middle class even have adequate emergency savings (defined as three month’s worth of income). [1] Even worse, families are acquiring significantly more than 100 percent more debt than their disposable incomes, often driven by their desire to maintain a comfortable lifestyle and live in neighborhoods with better schools for their children.[2] Over the years, this has contributed to a strong tendency in our society to incur debt in order to emulate the higher economic classes. The results have been staggering: Middle Americans accounted for 92 percent of 2006 bankruptcies and are reeling from severe financial setbacks brought on in large part by the subprime mortgage loan fallout.[3]

Insecurity About the Future

Even before the current financial crisis and resulting recession, some 70 percent of Middle Americans lived paycheck to paycheck.[4]Job security has disintegrated, and millions of at-risk households face the grim prospect of losing or seeing severe cost increases in their health insurance. Families worry about the demise of traditional pension plans, and have watched helplessly as the value of their retirement savings and their homes—the primary nest egg for At-Risk Middle Americans—sank to new lows. And in light of growing federal deficits, families also worry about the future reliability of Social Security.

Angst about Discussing and Dealing with Financial Concerns

Money is the number one stress factor for Middle Americans, yet it also is a seriously taboo subject. At-Risk Middle Americans are extremely hesitant to directly address issues of money and envy, debt, and overspending. Some social scientists are hopeful that the financial crisis is finally forcing a change in attitudes toward money and, consequently, habits around it. Current money attitudes and habits, however, are deeply internalized. In fact, a large majority of Middle Americans say they seldom or never disagree with their own spouse about money, indicating that there’s not a lot of talking about finances going on in the first place. [5] 

Lack of Realistic Preparation to Manage Income Decumulation

Almost half of Middle Americans have “extreme difficulty” understanding most financial information, and more than half think retirement planning is harder than raising kids.[6]So where do they go for advice? Not to professional financial planners, not to the financial services industry, and not to the media—they rely on relatives, friends, and coworkers. The lack of professional direction shows up in many unrealistic expectations. For example, although only about 12 percent of retirees have jobs, more than 75 percent of Middle Americans approaching retirement are confident that they’ll make money after they retire.[7]

Financially, mentally, and culturally, At-Risk Middle Americans are largely unprepared to fund its third stage of life. Nor do they benefit from adequate financial education, public policies, and services to promote behavioral change that will assist this audience in achieving self-sufficiency.

Without a collaborative financial literacy and social change effort that combines the best thinking of nonprofit organizations, financial planners, business, government, employers, and mass media, At-Risk Middle Americans’ uneducated choices and bad decisions regarding their retirement years pose a serious threat to not only their financial future, but that of their children and their communities. 

[1] Middle Class in Turmoil Study, Center for American Progress (2006).

[2] Middle Class in Turmoil Study, Center for American Progress (2006).

[3] Middle Class Barely Treads Water Study, Harvard University Study quoted in USA Today (2007).

[4] Getting Paid in America Survey, American Payroll Association (2007).At Risk Middle America

[5] What Americans Pay For—and How Study, Pew Research Center (2007).

[6] Consumers Say Financial Services Should Be Easier Survey, ING Financial Planning and Investing Study (2006).

[7] Working After Retirement: The Gap Between Expectations and Reality Study, Pew Research Center (2006).