May 27, 2013 — Several recent surveys of current and prospective retirees paint a very disturbing picture about retirement in America. The data made us realize that we American workers are kidding ourselves- with potentially dire consequences for our retirements. The studies drew us to come up with 7 dangerous retirement fantasies. Following those we have included the supporting data from the surveys.
The 7 biggest lies that workers tell themselves about their retirements:
1. I can’t save any more than I do. The fact is that if you are working, there is always something (clothes, alcohol, tobacco, eating out) you could cut to save a little more.
2. I will solve my retirement problem by working past 65 or even longer. Sadly, even though people say they will work, what they don’t count on is losing their job or their health. Some 42% of current retirees stopped working before they were 60 (Source: BlackRock and Boston Research Group poll).
3. Once I retire I will find some full or part-time work to supplement my income and give me a comfortable retirement. Fact: only 25% of retired workers have any employment income
4. My 401k or savings will provide the bulk of my retirement income. Fact: only 15% of retirees get 25% or more of their retirement income from their 401k type accounts. About half (47%) of Americans 45 and over have less than $25,000 in savings
5. I will have enough saved to last my lifetime. Fact: Only a quarter of workers think their savings have to last more 30 years. But people are living longer – what happens if you retire at 65 and live 30 more years? Or if your spouse survives you beyond that?
6. Medicare will take care of my medical expenses. Fact: A retired couple will need somewhere between $220,000 and $293,000 for ordinary health-related expenses for 20 years of retirement. (Society of Actuaries (SOA) using data from Health Care Cost Institute (HCCI)
7. I have a good idea of how much I’ll need for retirement, and how to invest it. Fact: 45% of workers just guess how much they’ll need for retirement. Only 18% have asked a financial advisor for assistance in determining that amount, with just 23% using a financial advisor for investment advice.
Consider these snippets from the surveys (see Further Reading below). What makes the data even more alarming for the future is that many current retirees, particularly those with traditional defined benefit pension plans, have it better than younger workers.
– Seven out of 10 workers say they will work for pay after they retire – yet only 25% of adults over 65 actually have any work income
– Although many more current workers are now much more likely to say they will work past 65, almost half (47%) of retired workers reported that they had to retire before they intended (usually because of poor health or a job loss)
– Adults aren’t saving nearly enough to pay for a comfortable retirement. Half of Americans (47%) 45 and over have less than $25,000 in savings (ERBI survey). Only 57% of workers are saving for retirement
– Mathew Greenwald, who heads the research firm that conducts EBRI’s annual survey, believes that Americans’ explanation for their saving troubles is “not really true” – most of them could save a little more if they wanted to
– EBRI research found in 2010 that 60 percent of those 65 or older received at least 75 percent of their income from Social Security. One-third get at least 90% of their retirement income from Social Security
– Defined benefit pension programs (fixed payments regardless of contribution) are very rare now. And only 58% of American workers are enrolled in pension or 401k type plans
– About half of workers (48%) assume that their 401k will be their largest source of monthly retirement income. But only 15% of retirees get 25% or more of their retirement income from their 401k type accounts
– Retirees aged 61-70 are taking out alarming amounts of money from their 401ks – before they are required to age 70.5 (EBRI)
– Some 28% of surveyed workers say they are not at all confident about being able to have enough for a comfortable retirement.
For further reading:
Retirement Lie: The Big Lie and the Big Fantasy
Retirement Expectations Vs. Reality
Blackrock Annual Retirement Survey
Low Earning Retirees Hitting IRAs Hard Before RMD at age 70.5
EBRI’s 2013 Retirement Confidence Survey
Retirement Health Care Tab is Surprising
How They Do It Elsewhere
Comments? What do you think – do you have any of these fantasies? What do you think could be done to encourage American workers to do a better job of preparing for retirement? Should companies require participation in 401k programs. Should the federal government require mandatory participation in a new retirement savings program (such as in Australia and Chile).