Retirement Saving Perceptions vs. Reality

The 2013 Retirement Confidence Survey has been released by the Employee Benefit Research Institute. The findings expose severe problems among retirement savers.

First, the retirement confidence expressed by those workers surveyed lingers at the same dismal levels reported in 2011.  More than half of workers expressed some level of confidence (13 percent “very confident” and 38 percent “somewhat confident) in having a financially secure retirement. Conversely, 28 percent reported being “not at all confident” with another 21 percent “not too confident.”

The outliers are those  who are “very confident” (18%) and “not at all confident” (14%).

Here are the unreal numbers as I assess them:  Those surveyed were asked how much they believe they will need to save to achieve a financially secure retirement.  20 percent replied that they will need to save between 20 and 29 percent of their income.  Another 23 percent replied that they need to save 30 percent or more of their income.

For the vast majority of people, those savings rates are nowhere near sustainable. In other words, the perceptions of what is doable in retirement savings rates far exceeds reality.

I don’t know how these proposed retirement savings rates got into the heads of those surveyed because only 46% had even tried to determine how much money they will need to retire securely.

I have sympathy for these folks and hope they find a way to cause their perceptions and realities on retirement planning to converge.  The starting point has to be actually estimating what it will cost them to live in retirement under a reasonable set of assumptions.

The survey report includes a chart showing retirement savings amounts by age. This chart is quite illuminating. For those age 55 and older, 36% had saved less than $10,000 for retirement!

24% of those in this boomer age bracket reported having saved more than $250,000. For some folks without substantial pensions or gold-plated private insurance, even this savings level could be a bare minimum amount needed because of future out of pocket health care costs which many estimate could be north of $200k.

Other big picture responses to all of this information may be:  (a) Social Security and 401(k) accounts cannot in combination meet the retirement needs of pension-less middle class retirees; and (b) retirement savings contributions should be mandatory, over and above current Social Security payroll taxes. Imposing retirement savings discipline from day one of your working life may be the best option for everyone. Don’t let the workers ever  see the money.

Here is a link to the EBRI 2013 Retirement Confidence Survey.

What is your take on all of this?

 


Comments

  1. says

    “Imposing retirement savings discipline from day one of your working life may be the best option for everyone.”

    I agree. There will always be some people that because of lack of knowledge, discipline, values, etc. will not save enough for retirement. Company pensions used to be the answer, but pensions are rapidly disappearing.

    We need some other option besides Social Security and Retirement Savings Accounts(401K, IRA, etc) that involves a mandatory contribution into an non-refundable inflation-adjusted annuity. Let’s call it the Personal Pension Plan.

  2. says

    The situation is much the same in Canada. Many people who are thinking about retiring, are just now realizing that they may not be able to afford to retire for quite some time. Folks without pensions at work are often inadequately prepared for the costs that they will incur during their retirement years.

  3. Tara says

    I am currently saving 50% of my income for retirement because I would like to retire earlier than 67. It is definitely possible if you get your expenses down and remain frugal, without suffering unduly – I am not living like a pauper by any means. At 46, I am just over 2/3 of the way to my retirement savings goal of $600K and expect to reach my goal within 7 years. Of course, this requires that one have the education and skills to make a good salary and not everyone is so fortunate I am in favor of mandatory retirement savings above and beyond what social security deducts from our paychecks, since so many people lack the discipline to save.

  4. BBerg says

    For the “vast majority” of people whose savings rates are “nowhere near” what is needed to retire, the solution will be easy. Because they are the majority, they will elect officials who are willing to transfer assets from the people who did save for retirement. The great asset grab is coming. Now wasn’t that simple???

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