When it comes to retirement savings, many Americans seem to be
"winging it" -- or heading for retirement without a realistic plan
of how to fund it.
Or so suggests a
recent survey
by the Transamerica Center for Retirement Studies. The survey
indicates that "retirement planning" is a very loose concept among
Americans. In many cases, the approach could be better described as
wishful thinking.
The following are some points of concern raised by the
study:
1. Savings rates remain very low
The median contribution level for workers in
401(k)
or similar plans is 7 percent. This is up from 6 percent in 2011,
but still too low a savings rate to fund a comfortable retirement.
Think about it: Retirement is likely to last roughly half as many
years as a career. How can you expect to replace most or all of
your income if you are only setting money aside 7 percent of that
income each year? With diminished expectations for the stock
market, and bond yields and savings account interest rates
approaching zero, most people are not going to be able to grow
their way to adequate funding.
Saving more
is the only way to make it work.
2. Retirement targets are also too low
The reason savings rates are so low is probably that people are
underestimating how much they will need in retirement. According to
the Transamerica study, the median savings goal of American workers
is $500,000 -- but how many younger workers understand that
inflation is likely to cut the value of that amount by at least
half by the time they retire?
3. Too many people are relying on guesswork
It's no surprise that savings rates and
retirement targets
seem off-base, because people simply guess at them. The
Transamerica Center found that nearly half (47 percent) of
respondents chose a retirement target by guessing.
4. Funding levels are off target
While the median retirement target is $500,000, the survey found
that 39 percent of workers in their 60s had saved less than
$250,000. That leaves them with too much ground to make up in too
few years.
5. People seem to be betting on good health
The survey found that most Americans plan to retire after age 65,
or not at all. Also, most plan to work after retirement. Working
longer may be an inevitability for many people, but it is hardly an
ideal retirement planning solution. After all, it means staying
healthy enough to work productively, and that is no sure thing for
people over 65.
6. Many start planning too late
It's only natural that older workers are more focused on retirement
planning than younger ones, but that is also unfortunate. The
younger you are, the more powerfully you can impact your retirement
savings, because you have that many more years to contribute money
and benefit from investment returns. The survey found that people
in their 60s are more likely to have a retirement plan and work
with a financial planner than people in their 20s. The problem is
that by the time you are in your 60s, your options for
significantly improving your retirement funding are very
limited.
Retirement planning is a very important individual
responsibility. The Transamerica Center survey should be a wake-up
call for Americans to take more positive action to plan for their
retirements.