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Health: The Biggest Determinant of Your Retirement Security

Philip Moeller

Being healthy may give you enormous financial advantages as well as provide physical and longevity benefits. In a recent study that tracked the retirements of older Americans up until the time they died, health differences emerged as a significant determinant of retirement success.

[See The 10 Best Places to Retire in 2012.]

"A substantial fraction of persons die with virtually no financial assets--46.1 percent with less than $10,000," said the study, "Were they Prepared for Retirement," by economists James Poterba, Steven Venti, and David Wise. "Many of these households also have no housing wealth and rely almost entirely on Social Security benefits for support."

Underlying the numbers, poor health was a common attribute of people who died with little wealth. Many of these households were "well-prepared for retirement," the study said. "Their income in their final years was not substantially lower than their income in their late 50s or early 60s." Yet these income levels were too low to handle big hits such as unexpected health expenses.

[See Do You Face 'Money Death' in Old Age?]

"The links from health to wealth seem to operate in many ways," Poterba told U.S. News. "Those in poorer health may retire earlier, may not work as many hours when working as their healthier counterparts, and they may spend more on medical care and on other related care," he explained. "Those in poorer health reach retirement age with a smaller pool of assets, both from their own saving and in the value of future pension and Social Security benefits."

Not only was there a strong correlation between poor health and earlier death, the study found, but also a strong tie between wealth and longevity. "Among persons first observed in 1993, those who will die the earliest begin with the lowest assets in 1993," the authors said. "The relationship between wealth when first observed and subsequent mortality is striking."

The study looked at the retirement fates of a large group of older people, beginning in 1993and tracking them for more than 15 years or until their deaths. It looked at older people who lived alone, couples in 1993 in which one spouse passed away during the study period (the study calls them "two to one" households), and couples in which both partners were still alive in 2008.

[See 8 Steps for Building Solid Estate Plans.]

One-person households fared the worst in terms of spending down all or nearly all of their wealth by the time they died, followed by two-to-one households and households in which both spouses had been alive.

Losing a spouse, either through death or divorce, can be financially devastating to the remaining spouse, especially for women. The incomes of one-person and two-person households were similar in the last year of their lives compared with when the tracking study began in 1993. However, for two-to-one households, the researchers said, "the decline in income between 1993 and the last year observed was almost 75 percent."

The lack of wealth involved housing as well as financial assets. "In the last year before death, 57.1 percent of single-person households have no housing wealth and 49.6 percent of persons in two-to-one person households have no housing wealth," the study said. "Remarkably, only 20.4 percent of persons who die with a surviving spouse have no home equity."

Twitter: @PhilMoeller

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