Dangerous Retirement Gamble Many Americans Are Making

More and more Americans in their 50s and 60s are gambling that they will be able to continue working in some capacity well beyond their normal retirement age to make ends meet. This is most often true because they haven’t saved nearly enough for a comfortable retirement.

Yet the fact is that 50% of retirees have to retire early, usually due to health problems, their spouse’s health, caring for a loved one, etc., etc. According to a widely-respected new study, only 27% of retirees actually work beyond their normal retirement age. Other studies show that number as low as only 15%.

The study getting so much attention over the last week is the latest annual report from the Employee Benefit Research Institute (EBRI), which is now in its 26^th year. The 39-page EBRI report – viewed by journalists as the mother of all retirement surveys because of its depth and detail – is laden with revealing data about how workers feel about retirement and what they’re doing (or not doing) to prepare.

The latest EBRI study, like countless others, found that most Americans are woefully behind in saving for their retirement. The 2016 EBRI survey interviewed people of all working-age groups to arrive at the following statistics:

In the column under 2016, you see that 26% of working-age Americans have less than $1,000 saved for retirement; 16% have less than $10,000 saved; and 12% have less than $25,000 saved. That means that 54% of working age Americans have less than $25,000 stashed away for their retirement. And remember, this is what they SAY when answering a survey. The numbers are very likely even worse!

Yet despite the latest EBRI findings on retirement saving, more than one-out-of-five workers say they are “very confident” about their ability to retire comfortably. Those who felt “somewhat confident” increased, while fewer said they were “not at all confident.” I have no idea how to explain this finding… again, other than what people SAY when answering a survey.

The most telling marker of retirement confidence is participation in a retirement plan, whether a 401(k), traditional defined benefit pension plan or an IRA. Among workers who reported that they or their spouse had money in one of these plans, 26% were very confident about retirement versus just 10% of those without a plan. That’s more than twice as confident.

Even worse, only 48% have even tried to figure out how much they’ll need to have saved by the time they stop working. Even fewer have calculated how much they’ll get in Social Security benefits or the future costs of their healthcare expenses.

That’s particularly discouraging given the boom in low-cost online financial advice. But as survey data elsewhere shows, only 2% of workers and 1% of retirees are very interested in getting such advice online. Again, I have no idea how to explain this.

The question is, how can more working-age Americans feel more confident in their prospects for retirement when the savings rate remains so appallingly low? The only thing I can think of is the housing market. A recent Federal Reserve report showed that since the housing market hit a low in early 2009, the value of homeowners’ equity has more than doubled.

The next question is, how much money do most Americans think they’ll need for a comfortable retirement? The EBRI asked this question in its latest annual survey. Here’s a summary of what respondents said.

A nest egg of half a million dollars or more is what 46% of workers think they’ll need to retire comfortably. Some 26% think they will need less than $250,000. Those who have actually tried to calculate how much they need set higher goals. This year, 31% of workers who have made that effort figured they needed at least $1 million for retirement.

A lot of things don’t add up in the latest EBRI report on retirement savings and trends. For one, retirement savings remain woefully inadequate for most working-age Americans, yet their confidence in retiring comfortably has increased in the last few years, so they say. Maybe it’s due to the rebound in housing prices – that’s all I can figure.

Finally, in a testament to human nature, while not enough people are saving for retirement, they’re definitely thinking about what they’ll do when they retire. Over two-thirds (67%) of workers said they had thought about how to occupy their time. Go figure.