The results of recent studies on retirement show that many Americans are not even close to being ready for retirement. Worse yet, many are not doing anything about it. One of the country’s most established and comprehensive studies is the Retirement Confidence Survey sponsored by the Employee Benefit research Institute. Now in its 20th year, this annual survey compiles the attitudes and behaviors of American workers and retirees towards all aspects of saving, retirement planning, and long-term financial security. Let me share some of the findings in the 2010 survey.1
The survey finds that the record low confidence levels seen after the financial crisis appear to have bottomed out. However, they are still not very encouraging. Only 16% if workers said they were “very confident” about having enough money for a comfortable retirement and retirees asked the same question where only at 19%.
It is no wonder many feel so ill prepared… an increased percentage of workers report that they basically have no savings at all. For example, 27% of workers said they have less than $1,000 in savings. More than half of workers, 54%, report that the total value of their household’s savings and investments, not counting their home and any defined benefit plans, is less than $25,000! How do you retire on that? Apparently reality must be setting in because the age at which workers expect to retire has been trending upward. The percentage of workers who expect to retire after 65 has increased over time, from 11% in 1991 to 14% in 1995 to 19% in 2000 to 24% in 2005 and now stands at 33% in 2010.
Sadly, many workers are totally clueless about how much they need to save for retirement. Only 46% of workers report that they and/or their spouse have tried to calculate how much money they will need to have comfortable retirement. My experience shows that even those who have saved for retirement still do not understand all the risks they face in retirement. These risks, if not addressed, can derail a comfortable retirement.
All of the following need to be considered in your retirement planning: Retiree spending – your rate of withdrawal has a profound impact on how long your money will last. Generally 4% to 5% withdrawal rates are regarded as sustainable. Inflation will erode the value of your savings so invest accordingly. Market volatility – the sequence of returns you experience in retirement can have a big impact on whether your money runs out or not. Longevity – statistically we are all living longer. Be sure to plan for a ripe old age. Catastrophic events can derail even the best retirement plans. Be sure to hedge against these with insurance. Legislative changes – it is always a good idea to consider how changes to Social Security, Medicare and taxes will affect your retirement plans. Lots to think about I know. Hopefully some advanced thought and planning by all will help to better the sorry statistics I sighted above.
1. Employee Benefit Research Institute 2010 Retirement Confidence Survey
Damien helps individuals invest and manage risk. He is a CERTIFIED FINANCIAL PLANNER™ professional and a principal of Walnut Creek Wealth Management. These are the views of Damien Couture, CFP® and should not be construed as investment advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Your comments are welcome. Damien can be reached at 925-280-1800 x101 or Damien@WalnutCreekWealth.com.
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