Lifestyle - US;Retirees hit by longevity risk

Tom Brown

MIAMI (Reuters) - Like many other elderly Americans, Edie Stark has been hard hit by the meltdown in U.S. financial markets. She is 84 and has been worried a lot lately about outliving her savings.

A retired nurse, Stark is a prime example of what financial planners coldly call "longevity risk," a reference to the need for a secure income and lasting savings at a time when growing numbers of Americans can live for 30 years in retirement.

Life expectancy in the United States has already reached a record high of 77.8 years, up from 70.8 in 1970, according to the U.S. National Center for Health Statistics. Fueled by continuing health gains, the U.S. Census Bureau projects life expectancy in the world's wealthiest country will reach 79.2 years by 2015.

Stark said she and her husband had seen more than 50 percent of their retirement assets wiped out since the stock market started tanking several months ago.

She still plans to see out the end of her days with her 88-year-old husband at the Palace, an upscale retirement complex where they live on the palm-fringed southern outskirts of Miami.

She acknowledges that may not be possible, however, as her life savings vanish.

"I have fixed expenses so I can add it up and tell you how many years we can live unless the market comes up," said Stark.

"We wanted to have money to leave our children. That's not possible anymore," said Stark, whose husband suffers from dementia and is cared for in an assisted living facility at the Palace.

Dorie Ryder, 89, a retired school teacher and neighbor of Stark's at the Palace, said she had lost about 25 percent of her assets to the recent stock market downturn.

She has fond memories of better times when she and her husband lived just a block away from the home of former President Richard Nixon on nearby Key Biscayne.

But Ryder said she is now contemplating a move into a Miami-area apartment, where she'd live alone but pay less rent than the $3,500 she forks out monthly at the Palace.

"I just do the best I can and I'm worried," said Ryder, who has a small pension. "I don't know how long I'll be able to stay here."

Coping with financial fears is not unique to the elderly, especially at a time of record home foreclosure filings, crumbling real estate values and rising unemployment.

It can be especially painful for the elderly, however, even for those who are still a long way from being destitute.

"Money anxiety when you're older is just different than when you are young. You don't have a chance to recover," said Teresa Ghilarducci, a retirement expert and professor of economic policy analysis at New York's New School for Social Research.

DYING OF WORRY

"I predict that this spike in anxiety around the security of money is actually going to lead to more sickness," she added. "People are going to die of worry."

Experts say millions of middle- and upper-class retirees across the country face mounting insecurity due to exposure to stocks instead of "safe money" investments like short-term bonds and fixed annuities.

Many were lured into the equities because they offered a chance to double their money from 2003 to 2008. Others face foreclosures because they over-borrowed against their homes before the U.S. housing meltdown.

"Probably half our clients are retired and yes, we have a lot of very worried, concerned clients," said Peggy Cabaniss, president of HC Financial Advisors in Lafayette, California.

"Their leading concerns are, No. 1, that they're going to run out of money," she said.

Like the American Psychological Association, Cabaniss said she tells her clients not to get caught up in blow-by-blow media reports about swooning markets and dour economic news.

"The way things are presented it sort of sounds like and feels like the end of the world," she said.

But avoiding bad news is tough when it affects life savings and people's retirement security hangs in the balance.

Ghilarducci and Alicia Munnell, director of the Center for Retirement Research at Boston College, say the erosion of retirement savings due to stock declines is something that should be triggering alarm bells.

The United States is the only developed, industrialized and democratic country in the world where traditional pension plans with a nearly guaranteed stream of income are being replaced by 401k plans, in which retirees bear many risks from volatile market investments, Ghilarducci said.

"It's disastrous," she said, referring to the outlook for retiring or soon-to-be retired "baby boomers."

"Late boomers will fare far worse than their parents and grandparents in terms of replacing their income in retirement, mainly because of the erosion in the employer pension system," Ghilarducci said.

"It highlights the flaws in our retirement income system," said Munnell.

"The idea that we have people increasingly and solely dependent on accounts which vary with the ups and downs of the stock market just doesn't make for a very sensible retirement arrangement," she added.

"My view is that it was always going to take the real suffering of a whole cohort before anybody was going to be willing to do anything to improve the retirement system. And I think the financial crisis may have accelerated that process."

(Reporting by Tom Brown; Editing by Eddie Evans)