Findings from a new study show that the majority of retirees and pre-retirees are not financially prepared for retirement and lack sufficient savings to fully retire at age 65.
According to Disconnected: Perceptions vs. Reality in Retirement Planning from The Stanford Center on Longevity (SCL) and Finance of America Reverse (FAR), the median retirement savings of those surveyed 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.”
Since many financial advisors suggest spending no more than 4% per year of invested savings, that equates to just $5,120 per year that most retirees could safely withdraw from their investments to supplement other retirement income sources, according to the report, which examines the challenges and concerns facing retirees and pre-retirees.
Among pre-retirees, nearly half (46%) said they are deciding when to retire based on their age and not their target savings amount, while nearly a 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 study observes.
Advice Needed
The findings also indicate there is room to improve the resources retirees and pre-retirees use to help make retirement planning decisions. 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 their retirement strategies, with 45% reporting they do not use a financial advisor at all. In addition, 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, according to the study.
Additional findings reveal that 60% of retirees and 64% of pre-retirees noted a financial professional would be “extremely or very helpful” in determining an investment strategy, while 57% and 61%, respectively, stated a professional’s advice would be helpful for planning their retirement savings.
Concluding Observations
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. To that end, the authors note that in their research, they saw several repeating themes and emerging implications:
- People have a difficult time envisioning, and therefore planning for, longer lives. Consequently, helping people develop a picture of the lives they would like in older age might help motivate them to plan and to plan differently, the report emphasizes.
- While retirement planning is highly personal and dependent on many factors, there is an almost universal desire for “peace of mind” in retirement. Pre-retirees and retirees also express a strong interest in having “flexibility and control over their lives.” Building on these desires can lead to more effective messaging and interventions, the authors suggest.
- Most pre-retirees and retirees need and want help with the critical retirement decisions they face, but they’re not always certain where to find it—nor seek it out if they do.
“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,” notes Steve Vernon, a consultant with SCL and co-author of the report.
“The invaluable insights from this survey illustrate where 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,” adds Vernon.
Findings from the study incorporate research from multiple sources, including: a custom survey of 2,000 U.S. retirees and pre-retirees from the ages of 50 to 74, conducted by Greenwald & Associates; in-depth interviews with 21 academics, industry experts and recent retirees; and a detailed review of relevant literature across the financial planning and retirement spaces.
