Will “affluent” Americans be impacted by today’s changing economic realities?

A new study by the Bank of America looks at those with investable assets between $100,000 and $3 million. Twenty-three percent said the biggest issue at this time is the “impact of economic turbulence on their retirement savings.”

BOA reports that “although the majority of respondents with at least one retirement account say that they have not withdrawn assets from their account(s) prematurely (68%), recent economic conditions have caused nearly one in five (18%) to withdraw assets prematurely. The leading reasons for these early withdrawals are near-term financial obligations, such as credit card debt (26%) and mortgage payments (22%), with an additional 22 percent citing recent job loss.”

The study shows that 43% “believe they now face more years in the work force than they expected to one year ago.” Thirty-six percent of affluent respondents said current economic conditions have pushed back their expected retirement age.

Despite recent market turmoil, more than two-thirds (68%) of respondents have not changed the way they save, invest or manage their retirement assets in the last three months, says BOA.

Fifty-nine percent of the general public and more than half (52%) of affluent Americans don’t know or don’t have a good idea of how much they’ll need to save in order to maintain their current standard of living in retirement, according to the survey.

One quarter (25%) of the general public and one-third (33%) of affluent Americans still have at least one 401(k) or 403(b) plan with a former employer, says the report. Of those who have a plan with a former employer, close to half (48% general public, 46% affluent) intend to keep their assets in the existing plan.

I looked at these results and thought, hmm — interesting, whatever to make of this in a general sense.

First, you have to wonder how many people have “investable assets” between $100,000 to $3 million. In March, the Employee Benefit Research Institute reported that 75.1 percent of all pension assets — 401(k) plans, IRAs,and Keogh plans — were held by individuals with a college degree. Since most individuals don’t have a college degree you can pretty much bet that relatively few people have investable assets worth $100,000 or more.

Second, is home equity an investable asset? I ask because the report mentioned retirement plans and pensions, but not real estate. Given that BOA acquired Countrywide during the past year, and given that the largest financial asset held by many people is home equity, you have to wonder what role real estate plays in retirement issues.

For instance, does it make sense to have a reverse mortgage to supplement Social Security and pension income? There’s no universal answer, no “yes” or “no” that works for everyone, but should not the concept be explored if only as one possible option? Example: a reverse mortgage is used to retire the current forward mortgage — thus ending monthly payments for principal and interest and effectively increasing monthly income.

Third, how are individuals with limited resources, say just Social Security, supposed to retire? People could work longer in some cases, but that’s not an option for everyone, especially with rising unemployment levels or for those with health concerns.

It may well be that one of the many unhappy consequences of the historic financial meltdown we see each day is the impact on retirement planning. The problem is massive — and too huge to ignore the value of real estate equity.

This entry was posted on Tuesday, December 9th, 2008 at 4:27 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.