March 22--Only 21 percent of Americans are "very confident" they ever will have enough money for retirement, and many are worse off than they think, according to a new study.
With scant savings, Americans say their solution will be to work long past age 65. But while that's a nice idea that could work if they really worked to age 70, "they probably won't be able to do it," said Matthew Greenwald, one of the researchers in an annual retirement confidence study done by the Employee Benefit Research Institute.
EBRI has found that 46 percent of retirees have retired earlier than planned, usually because health issues arise, but also because of layoffs or discontentment with their jobs.
About 40 percent of people are saving so little they will run out of money in retirement, said Craig Copeland, senior researcher for EBRI. Currently, 26 percent of workers or their spouses have saved no more than $1,000, according to the research. An additional 16 percent aren't doing much better. They've stashed away between $1,000 to $10,000.
At age 55, about 30 percent of people approaching their retirement years have accumulated at least $250,000. That sum would provide about $10,000 a year to cover retirement living expenses if people follow a financial planning rule of thumb, which is: During the first year of retirement, remove only 4 percent of total savings, and each year increase that withdrawal only slightly to cover the inflation rate.
Sentiment has improved since the recession of 2007-2009. Then, only 13 percent of people were confident they'd have enough money to retire some day. Optimism started increasing a couple of years ago but never returned to the high point of 27 percent when the stock market was soaring in 2000. EBRI has been doing the study each year for 26 years.
People tend to judge their chances of retiring comfortably based on the vagaries of the stock market, said Greenwald. In early 2015, after a strong run of gains, confidence was at 22 percent. But this year the market was falling as EBRI researchers did their study, and confidence slipped to 21 percent.
Greenwald said people are judging their future incorrectly. Instead of focusing on momentary ups and downs of investments in 401(k)s or IRAs, he said, they need to focus instead on what they are saving and how much they will need for retirement.
Saving about 10 percent a year starting with a first job and keeping that up each year until retirement has been shown to be effective in building up a decent nest egg. But instead Greenwald said people are focused on paying immediate expenses rather than working regular saving into their budget.
If a person started their first job with a $30,000 income at age 21 and had a 401(k) at work, the individual could end up at retirement with about $1.6 million if they averaged an 8 percent return on mutual fund investments per year and put away 10 percent of pay a year. If he or she worked for a company that matched employee contributions at the 3 percent level, the individual could stash away 7 percent of pay and get another 3 percent from the employer to get to 10 percent. Try this calculator to see the impact.
But Copeland said a major problem for Americans is that only about half have retirement savings plans like 401(k)s at work, and those without plans at work do a poor job of saving. According to the research, 88 percent of people with retirement savings plans at work had stashed money into those plans, but only 21 percent had saved anything for retirement if they didn't have a plan at work.
People without savings plans at work could save money in individual retirement plans, or IRAs. But when saving isn't easy at work, few take the step. Not only are people confused about what to do in their savings years, but most people do a poor job of calculating what they will need for retirement prior to retiring, Greenwald said. EBRI's "ballpark estimate" calculator available here allows people to do the calculation easily.
gmarksjarvis@tribpub.com
