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What, me worry….?? April 22, 2015

Posted by forwardfinancialplanning1 in Retirement Savings.
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Those words were memorialized by Mad Magazine in my youth, but it’s a very good synopsis of the approach many Americans are taking to preparing for their retirement. The non-profit Employee Benefits Research Institute (EBRI) conducts an annual survey of Americans’ retirement confidence.  The 25th annual Retirement Confidence Survey found that 37% of workers are “very confident” of their ability to achieve a comfortable retirement and 36% are “somewhat confident”.  The 37% reading for “very confident” represented a doubling of the percentage reporting similar confidence in 2013.  Certainly, the financial markets’ performance during this time period made a positive contribution to this increase

But are these increases warranted?  Not so, according to Jack Vanderhei, Research Director for the EBRI who stated, “There’s probably a lot of false optimism, there.”  And when you look at the hard data supporting Jack’s belief, it’s pretty easy to agree with him.

For instance, 57% of workers report that the total value of their household savings and investments (not counting home equity and any defined benefit pension entitlement) was less than $25,000.  Of that group, 28% have saved less than $1,000.  Older workers fare somewhat better with 23% aged 45 and older reporting accumulated retirement assets of $250,000 or more.  Yet, for those holding $250-300k as available for retirement, the traditional 4% withdrawal rule of thumb suggests that they will be generating less than $1,000 per month on a sustainable basis.

When one also considers increasing medical costs, the financial predicament of Medicare and long term care costs (the majority of which are not covered by Medicare), it’s hard to be as optimistic as the “confident” respondents.  Vanderhei did not suggest any explanations, but my professional opinion is that most people never take the time to forecast “their number” needed for a successful retirement.  In our planning business, most people tell me that they simply “guessed” at a figure, or never bothered to try to make such an estimate.  And as the famed philosopher, Yogi Berra once said, “If you don’t know where you’re going, you might wind up somewhere else.”

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