Oct 08 2014

Financial Capability Near Retirement: A Profile of Pre-Retirees


Legendary football coach Vince Lombardi once said, “The harder you work, the harder it is to surrender.” We all want to surrender from the workforce on our own terms. Whether retirement comes early or late, financial planning is necessary. Gone are the days where everyday workers could rely on a pension to accommodate their financial needs during their retirement years. In 1985, four out of five employees of midsize and larger firms participated in a defined benefit (DB) or pension plan, while only two in five took advantage of a defined contribution (DC) plan like a 401(k). Twenty-five years later, only 30% of employees were still in pension arrangements, and more than half had DC plans (Employee Benefit Research Institute 2011).

This report, the second of a series of four reports on various American population subgroups’ financial capability, analyzes the financial state of pre-retirees—those between 51 and 61 years of age. Authors Carlo de Bassa Scheresberg and Annamaria Lusardi from the Global Financial Literacy Excellence Center at George Washington University use financial capability data from the 2012 National Financial Capability Study to highlight the troubling prevalence of long-term debt among individuals who are close to retirement.

The data reveals that many pre-retirees use expensive credit card borrowing, lack both short-term and long-term financial management and planning, and use financial advice only sparingly.

Other key findings include:

  • The most important factor driving the increase in debt is the much higher value of primary-residence mortgages. 
  • One-fifth of pre-retirees have used alternative financial services, like payday loans or pawnshops, in the past five years.
  • Only a minority of 51- to 61‑year-olds have made provisions for rainy-day funds to carry them through unexpected economic shocks.

It will be important for credit unions to balance the legitimate needs for profits against the well-being of their members. Independent of education, it’s imperative that credit unions make their own loan and retirement products compelling and valuable, especially for members just starting their retirement planning.

Filene thanks our generous supporters for making this important research possible. 

Report Number 332