In just the last week, I’ve seen a research report stating that workers are optimistic about having enough money to retire. I also saw an article that noted 25% of people over age 50 expect to never retire. On top of that there are opinion writers saying you can’t think about retirement without having $5M, or you’re crazy to even consider retiring before your full retirement age.
What’s even crazier is these articles are in well-respected news outlets or provided by organizations who have been studying retirement for years. How can the average person reconcile one person who says you can’t with someone else who says you’re already there?
Employee Benefit Research Institute (EBRI) Retirement Confidence Survey
For the past 34 years, the EBRI has surveyed workers and retirees regarding their confidence about retirement. This year’s numbers show an increase versus past years: 68% of workers are confident that they will have enough money to retire compared to 64% last year. The EBRI notes that this might be due to wage growth many people have experienced as a result of increased inflation and lower unemployment rates.
Interestingly, there’s still a disconnect about when workers think they will be able to retire versus when recent retirees actually did retire. 70% of retirees reported retiring before age 65, while 65% of current workers think they will be able to retire at age 65 or later. Additionally, 75% of workers think they will continue working in retirement while only 30% of retirees have jobs currently.
This shows a level of confidence across workers that may need to be watched closely, especially regarding their ability to work at a later age. More media reports note that people losing their jobs in their 50s and 60s often never find the same level of employment, causing them to retire earlier than planned. In other words, current workers may not have as long in the workforce as they once believed.
AARP Financial Security Trends
While the EBRI presents a positive yet cautious look at retirement readiness, the AARP Financial Security Trends survey shows a bleaker outlook. About 26% of US adults age 50 and older say they never expect to retire, mostly because a substantial percentage of them have zero retirement savings. While many of the people surveyed expect their financial picture to brighten in the coming year, only 33% of those over 50 agree. People who haven’t saved or haven’t saved enough for retirement report that they will be forced to remain in the workplace to make ends meet.
Unfortunately, as reported in the EBRI survey, the desire to work longer often isn’t achievable, either due to injury or layoffs. The question is what happens to these people if they are thrown out of work before they reach their full retirement age.
Pundits
One recent article I read noted that more people want to retire in their early 60s, then used scare tactics (Social Security will only pay a percentage of what it covers now, you will need more than $300,000 just to pay for health care, etc.) to state that this is a “dream” reserved for those who have saved substantial quantities of money. Nowhere is any mention given to differing costs of living across the country, the fact that paying off your home before retirement can substantially lower your needed income, or any other ways everyday people have been able to retire successfully.
And a more famous name – Suze Orman – went even further. “Two million dollars is nothing,” she said. “It’s pennies in today’s world.” She went on to note that if you have $20M to $100M that you could retire comfortably. Perhaps simply an effort for publicity, this kind of “advice” is ridiculous at best, and injurious at worse, in that it can cause people to give up before they even realize how wrong she is. Note that in the EBRI, for retirees who calculated their retirement needs, 74% stated they needed less than $2M. More than half needed less than $1M. While that’s still a substantial amount of money, it’s much less than the impossible goal (for the majority of Americans) of saving $40M.
It depends on you
If you live in a high cost-of-living area, spend $40,000 per month and travel extensively, then yes, you will need a large amount of money to retire. Chances are though if you’re spending that now you are well-off enough to cope. For the rest of us, it comes down to your specific needs and goals in retirement.
Start your planning by focusing on annual spending. Many people say to take a percentage of your current income to determine your needed income in retirement. I find this lacking. Instead, look at what you’re spending, add in what you want to achieve in retirement, then see how much money you’ll need. For example, let’s assume you’re spending $6,000 per month now and want to live basically the same life except you want to travel three times per year. Estimate the cost of the trips you hope to take and add it to the total annual spend, then divide by 12. While this isn’t a definitive answer, it will give you a close range to aim toward for your retirement savings.
And take the daily news with a grain of salt. In this age of limitless experts on various topics, it sometimes seems the ones who scream the loudest or make the most outrageous claims get attention. That doesn’t make them right. Use reliable sources for retirement planning, including brokerage and bank websites and blogs that you trust. Whatever you do, don’t let any news item stop you from planning. While you may not save $40M, you can save enough to have a comfortable retirement.
Photo by Sora Shimazaki