Confidence in a Comfortable Retirement
"America appears to be a nation of optimists when it comes to retirement, but for some people the retirement dream may turn into a nightmare." - Dallas Salisbury, President and CEO of the Employee Benefit Research Institute (EBRI)
The results of EBRI’s 2004 Retirement Confidence Survey (RCS) provide an alarming look at Americans’ expectations and preparations for retirement. Most survey respondents were generally confident about their chances for living comfortably during retirement. And yet only 58% are saving for retirement, and of those many have saved a relatively small amount of money. In a troubling paradox, almost half (47%) of workers who have not saved anything toward retirement remain at least somewhat confident of having enough income during retirement.
Why aren’t Americans saving for retirement?
There are a number of possible reasons why people are failing to save. For example, 68% of RCS respondents expect to work after reaching retirement age. However, evidence suggests that continuing to work isn’t always possible. Among the current retirees surveyed, 37% stopped working earlier than they had planned. Of those early retirees, 35% were forced to retire due to health problems or disability, and 28% due to company downsizing or closure.
In addition, the RCS reveals that many people severely underestimate how much income they will need during retirement. Financial experts usually suggest that you will need at least 70-80% of your pre-retirement income each year to maintain your standard of living during retirement. Yet 38% of RCS respondents think they will need less than 70% of their pre-retirement income. At the same time, the majority (64%) expect to have the same standard of living after they retire.
Your retirement savings plan
Perhaps these survey results will prompt you to reassess your own retirement savings plan. Have you been overly optimistic about your chances for funding a comfortable retirement? Here are a few ways to get your plan back on track:
- Set a goal. Less than half (42%) of workers have tried to calculate how much money they will need to save for retirement. If you’re one of them, start by estimating how much you’ll need to retire comfortably. Then you’ll be able to figure out how much you need to save now in order to reach that goal.
- Get the facts on Social Security. Only 19% of RCS respondents knew when they would be eligible to start receiving full Social Security retirement benefits. Increases in full retirement age are currently being phased in, so to avoid reduced benefits for retiring too early, call the Social Security Administration at 800-772-1213 or visit www.ssa.gov to find out your full retirement age based on your year of birth.
- Save now, and make sure you’re saving enough. If you fail to save enough today, you could be facing a lower standard of living in retirement. Growing a retirement nest egg isn’t easy, so make the most of the resources you have. If you’re already saving through your employer-sponsored retirement plan, consider increasing your contribution rate. Also, take a look at other savings vehicles, such as Individual Retirement Accounts, which offer tax advantages to retirement savers.
And remember, you don’t have to go it alone: A professional financial advisor can give you valuable guidance in calculating your savings goal and devising your retirement investment strategy.