Yet another study has found the majority of retirees and pre-retirees are not financially prepared for retirement and lack sufficient savings to fully retire at age 65.
Retirement solutions provider Finance of America Reverse (FAR) today announced the release of “Disconnected: Perceptions vs. Reality in Retirement Planning,” a new study from the Stanford Center on Longevity (SCL) that examines the challenges and concerns facing retirees and pre-retirees as they plan for retirement.
Of those surveyed, the median retirement savings were valued at $128,000 and more than half (55%) of respondents reported their financial situation as fragile or being just able to get by financially. Going by the old 4% rule, that equates to just $5,120 per year that the majority of retirees could safely withdraw from their investments to supplement other retirement income sources.
Among pre-retirees, almost half (46%) said they are deciding when to retire based on their age and not their target savings amount, while nearly one-third (30%) reported having no plan for deciding when to retire.
Among pre-retirees, almost half (46%) said they are deciding when to retire based on their age and not their target savings amount, while nearly one-third (30%) reported having no plan for deciding when to retire, which might result in retirees not having enough income in their later years, especially at a time when their medical and long-term care expenses tend to increase.
The findings also indicate there is room to improve the resources retirees and pre-retirees use to help make retirement planning decisions. According to the study, nearly three in four respondents (72%) rely on their own instincts when making retirement decisions, with that being the only resource used by more than half of all respondents.
Conversely, only 41% of respondents say they currently rely on a financial advisor to assist them with retirement planning, and 60% of respondents indicated they should have done more planning than they did. The combination of these factors and the lack of planning earlier in life contributes to low confidence in retirees’ and pre-retirees’ future financial outlook, with only 10% of respondents feeling comfortable with their finances.
“So many Americans manage their finances on their own for years without any advance planning, only to then find themselves ill-equipped for the surprises, frustrations, and sheer expense of sustaining a 30-year retirement,” said Steve Vernon, a consultant with SCL and co-author of the report. “A strategic, multifaceted approach centered around financial literacy and engagement, step-by-step expert guidance from wealth planners and advisors, and empowering messaging for retirees can truly make all the difference in building a financially secure future.”
The survey also reinforces the need for Americans to think about retirement planning more proactively and seek the advice of financial experts to help support them in reaching their future financial goals.
“The way we think about and plan for retirement is going to require a fundamental shift. The accepted path of education, career, and a retirement at 65 ignore the true demographic and social changes happening in our country,” said FAR President Kristen Sieffert. “We need to invest in non-biased education and in building a set of retirement tools as broad and diverse as the various paths people take in the second half of life.”
Sieffert added that Americans are living in a time of transition, marked by longer lifespans, increasing housing and healthcare costs, more volatile markets, but also encore careers, lifelong education, and a redefinition of life after 60. “The insights from this study help inform our work with financial advisors and consumers alike, underscoring the importance of planning ahead and of home equity as a central financial tool for the new realities and possibilities in retirement.”
Expectations don’t match retirement plans
The study found 80% of respondents cited lifelong financial security, affordability of care/assistance, and maintaining their preferred retirement lifestyle as extremely important or very important to them.
More than 8 in 10 respondents saw unique circumstances as a net barrier to retirement planning, while 74% cited life’s uncertainties. Nearly half (46%) of pre-retirees report they’ll base their decision to retire on their age, instead of when they attain a target savings amount.
And 30% of pre-retirees report they have no plan for deciding when to retire, despite when and how to retire being one of the most important decisions facing pre-retirees.
Download the full report here: disconnectedretirement.stanford.edu
SEE ALSO:
• Reverse Mortgages Reduce Sequence-of-Returns Risk in Retirement Portfolios: Study
• Alarming Percentage of Americans Have Less Than $25,000 Saved for Retirement
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
