COLUMN-Getting past America's bad case of retirement blues

Tue Mar 19, 2013 11:52am EDT

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By Mark Miller

CHICAGO, March 19 (Reuters) - The economic recovery is not helping Americans shake a bad case of the retirement jitters.

Workers and current retirees are less confident than ever in their ability to live comfortably in the post-employment world, according to the 2013 Retirement Confidence Survey published Tuesday by the nonprofit, nonpartisan Employee Benefits Research Institute.

But the survey also shows that the retirement blues may be due not only to the Great Recession's aftermath, but also to a widespread lack of planning and unrealistic guesswork by individuals about how much they need to save.

The EBRI survey stands out from the dozens of other retirement surveys for its longevity. Now in its 23rd year, it gives a measurable long-range view of American attitudes about retirement. This year's results show historically high worry about retirement security among workers and current retirees.

"Confidence dipped after 2007, and it's been sliding since then," says Nevin Adams, co-director of the EBRI's Center for Research on Retirement Income.

The EBRI surveyed 251 retirees and 1,003 workers, ages 25 and older in January. Some of their worries:

- Just 24 percent of current retirees are confident about their ability to meet basic expenses, down from 35 percent in 2011.

- More than half of the surveyed workers have saved less than $25,000 for retirement (excluding the value of their home and any traditional defined benefit pension). And just 24 percent of households with incomes of less than $35,000 have managed to put away any sum of money at all, down from 49 percent back in 2009.

- Employment worries are paramount. Current workers and retirees both cite job uncertainty as the biggest problem facing Americans.

- More people expect to rely on Social Security. Seventy percent of retirees call it a "major source" of income, up from its recent low of 55 percent in 2007, before the recession and stock market decline began.

- People expect to work longer. Thirty-six percent of workers expect to stay on the job past age 65, up from 11 percent back in 1991. Meanwhile, the percentage of workers expecting to retire before age 65 is now half what it was two decades ago: down from 50 percent in 1991.

PLANNING PROBLEMS

All these numbers point to the profound damage wreaked by the recession, joblessness and wage stagnation. But the survey also points to another problem: Workers and retirees seem to lack the planning skills and the information to figure out what they need to save and how to save it.

For example, less than half (46 percent) of survey respondents have tried to calculate the assets they will need for retirement. The numbers are only slightly better among workers closer to retirement.

As a result, savings goals often are unrealistically high. One-fifth of workers say they need to save between 20 percent and 29 percent of their income each year, and 23 percent indicate they need to save 30 percent or more. The average savings rate in 401(k) plans is 8 percent, according to a recent study released by Fidelity.

But the lack of planning goes beyond saving; it also means many of us have not really projected retirement expenses. Instead, people are guessing, or relying on misleading rules of thumb promulgated by the financial services industry - namely that we all will need at least 80 percent of pre-retirement income, if not more, in retirement.

These rules of thumb are what I called "rules of dumb" even before the recession. Now it is more important than ever to get a realistic projection.

This requires some effort, but it is not rocket science. Start by penciling out actual nondiscretionary expenses in retirement, like housing, food, utilities and transportation. Remember that when you stop working, some expenses disappear: commuting, work wardrobes, lunches out - and saving for retirement itself.

Compare your expense projection with what you can count on from Social Security (it will be there), pensions (if any) and a conservative annual drawdown of your savings (say, 3 percent in the first year plus an annual adjustment for inflation).

If those two columns do not match, by all means try to save more, but also sharpen up the pencil and think creatively about ways to reduce expenses. You may want to downsize to less-expensive housing or eliminate other nonessential spending.

The Internet is littered with expense calculators that can help get you started. But the classic book on the subject is "Retire on Less Than You Think" (Times Books) by Fred Brock, the former retirement columnist of The New York Times. Brock concludes that most of us can retire on far less than the rules of thumb suggest, if we are willing to get creative.

In this economy, a little creativity could just carry you a long way into retirement.

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