Study highlights late-life financial risks for retirees

Reliance on 401(k) accounts may be tested by out-of-pocket costs and increased longevity

As life expectancy rises, more people will face late-life financial risks for which they may be unprepared, according to a new report. The study for the Center for Retirement Research (CRR) at Boston College highlights risks faced by Americans aged 75 and older, a population that is projected to more than double by 2040. These risks include high our-of-pocket medical expenses, an increased possibility of financial mistakes due to declining cognitive abilities and the prospect of widowhood.

Increasing reliance of 401(k) plans

The study observes that the growing group of older retirees facing physical and cognitive risks will be much more reliant on 401(k) plans, which typically provide a lump sum, than on traditional pensions, which provide a stream of income. Defined contribution plans are harder to manage with age, in part because individuals must decide how best to draw down their accounts, according to the report. The study further asserts that in the future, an increasing number of older retirees will rely on 401(k) balances and Social Security checks that do not cover as great a percentage of pre-retirement income due to the increase in the “full retirement age.”

Out-of-pocket health care costs still a concern

The study notes that even though Medicare provides universal health coverage to retirees, out-of-pocket costs can still pose a substantial burden for elderly households. In addition to premiums paid, Medicare enrollees contribute a portion of the of Medicare-covered services they receive through copayments and deductibles. Also, enrollees face the full cost of many services not covered by Medicare, such as dental and vision care. For a minority of households, these out-of-pocket expenses can eat up over half of total income, potentially causing them to dig into savings to make ends meet.

More specifically, the study cited findings from a 2018 report by the National Bureau of Economic Research showing the average retired household will incur about $100,000 in total out-of-pocket medical spending (including long-term care) beginning in their early 70s. The top 5% of spenders will incur almost $300,000 per household over their lifetimes.

Cognitive decline and widowhood can compound financial risks

Aging individuals can also experience a decline in their ability to manage their money, increasing the risk of making routine financial mistakes such as failing to pay bills or falling victim to fraud. The study also found afflictions such as dementia make the problems worse. Compared to younger people, seniors are more likely to be targeted by fraudulent investment schemes; the study noted that nearly one in six seniors reported losing money to such schemes.

In addition to out-of-pocket expenses and potential cognitive decline, the study observed that widowhood poses a financial risk for the elderly, although a recent CRR report found that the poverty rate for widows dropped from 20% in 1994 to 13% in 2014 due to women’s increasing labor force participation and education. A broader potential concern is how widowhood will affect the ability of women to maintain their standard of living in retirement.


The number of individuals aged 75 and up is expected to double in about 20 years. This group will be more reliant on 401(k) wealth and less on traditional pensions and Social Security than previous generations. The study concludes that while out-of-pocket medical expenses, financial mistakes and widowhood do not have a severe impact on the finances of most older Americans today, these threats may be more widespread in the future.


Center for Retirement Research at Boston College, “What financial risks do retirees face in late life?”, Matthew S. Rutledge and Geoffrey T. Sanzenbacher, Jan. 2019 (Number 19-1)

Financial Advisor, “Longer lives mean greater financial risks for elderly,” Jacqueline Sergeant, Jan.22 2019

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Jon Vogler
Senior Analyst
Retirement Research, Invesco Consulting

Senior Analyst Jon Vogler draws on extensive pension expertise to offer retirement thought leadership for Invesco. In addition to writing Invesco’s Retirement blog, he tracks legislative and regulatory developments and contributes as a writer and editor to a variety of retirement-related Invesco communications.

Prior to joining Invesco in 2008, Jon spent more than 25 years in the research, writing, compliance and underwriting areas of the retirement services industry, including roles as a senior consultant at Mutual Benefit Life’s pension consulting firm and as a compliance manager in the Automatic Data Processing retirement services division.

Jon earned the Fellow, Life Management Institute (FLMI) and Competent Toastmaster (CTM) designations. He has a B.A. in History from Rutgers, The State University of New Jersey.

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