Do More Americans Feel Confident About Retirement? by Gary D. Halbert
FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
April 28, 2015
IN THIS ISSUE:
- 70% ‘Say’ They Feel Confident About Their Retirement
- A Retirement Crisis Still Looms in the Years Ahead
- Some Terrible Investing Advice For Millennials & Anyone
70% ‘Say’ They Feel Confident About Their Retirement
More Americans say they are feeling more confident about their retirement. That’s according to the results of the latest “Retirement Confidence Survey” conducted each year by the non-profit Employee Benefit Research Institute (EBRI). The Washington-based EBRI is the leading source for data on savings, retirement, health and related issues.
In their 2015 survey, some 37% of all respondents said they feel “very confident” about their retirement, and another 33% said they feel “somewhat confident.” The problem is that many Americans ‘say’ they are confident about having enough money to retire, even though they have nowhere near enough money stashed away.
As we drill deeper into the latest retirement survey, we find that overall only 22% of current workers are now very confident about having enough money for a comfortable retirement and 36% are somewhat confident, according to the 2015 study.
In another important finding, retirement confidence for most Americans depends on whether or not they (or their spouse) participate in an employer-sponsored retirement plan, such as a 401(k). Company-sponsored 401(k)s, especially those in which the employer “matches” a portion of the employee’s contributions, are like a magnet for retirement saving.
Perhaps the most important finding in the study was the fact that workers with a company-sponsored retirement plan are more than twice as likely as those without a retirement plan to be very confident – 28% with a plan, as compared to only 12% without a plan.
While the findings above are somewhat encouraging, it is important to keep in mind that many respondents overstate the amount of retirement savings they actually have, and just as critical, under-estimate how much money they will actually need in retirement.
A Retirement Crisis Still Looms in the Years Ahead
In the aggregate, savings remain relatively low and only a minority of Americans appears to be taking the basic steps needed to prepare for retirement. A sizable percentage of workers reported having virtually no savings or investments. Among workers responding to EBRI’s survey, 28% say they have less than $1,000 saved for retirement.
The latest survey found that over a third of workers feel they are “far behind” schedule in their saving for retirement, and another one in four feel “somewhat behind” schedule. In all, 64% of all respondents feel that they are behind where they want to be when it comes to planning and saving for retirement.
The rising cost of living and difficulty meeting day-to-day expenses top the list of reasons why workers say they aren’t saving for enough retirement, according to EBRI. But many workers also say they could save a small bit more for retirement.
For instance, 69% of workers said they could save $25 more per week than they are currently saving. FYI: If you saved $25 more a week for 30 years in an account earning 5%, you’d accumulate about $90,000 more in your retirement nest egg.
Sadly, over half of workers reported that they (or their spouse) have not calculated how much money they need to have for a comfortable retirement. This is despite the fact that there are numerous retirement calculators available on the Internet, most of which are free of charge.
Any discussion of a looming retirement crisis would be remiss not to comment on the wave of Baby Boomer retirements that is already upon us. It is not news that Baby Boomers, people born between 1946 and 1964, are starting to turn 65 and beginning to retire in droves. The nation’s 75 million Boomers are retiring at a rate of one every nine seconds and this will continue through 2029.
There are just over 40 million Americans age 65 and older, and they make up over 13% of the population. By 2030, when all the Baby Boomers will have passed age 65, the over-65 crowd will reach 20% percent of the population. At that time, the median age of Americans will increase to 39.6 years, up from just over 37 today, and a significant increase from just under 30 in the 1960s and ’70s.
The US is not the only country with an aging population. Canada, Japan and most of Europe have older populations than the US.
There are 11 US states with more than a million people age 65 and older, led by California with 4.3 million. The other states with the highest percentages of people age 65 and older are Florida, West Virginia, Maine and Pennsylvania. The states with the lowest proportions of senior citizens are Alaska, Utah and Texas.
The average life expectancy for a 65-year-old American today is 17.7 years for a male and 20.3 years for a female. That represents three to four more years of life expectancy compared to what the prior generation had at the same age.
The average income for those between ages 65 and 69 is $37,200, but drops to a little less than $20,000 for those over age 80. According to the EBRI, an increasing number of people age 65 and above continue to work at least part-time, even though they are officially ”retired.” Among those, the main sources of income for people over 65 are Social Security (37%), income from working (30%), pensions (19%) and savings and investments (11%).
About 65% of workers retire by the time they turn 65, but that number is falling as more people continue to work beyond 65. Of those still working past that age, over a third are employed part-time. People with higher education, as well as divorced women, tend to stay in the workforce the longest.
Here’s the bottom line for Boomers when it comes to retirement. According to Fidelity Investments, the average US Baby Boomer has only $147,000 in their 401(k). The number is higher for Boomers who have contributed to their 401(k) for 10 consecutive years, at around $250,000.
Either way, that is not enough, even with Social Security, for most Boomers to fund the lifestyle they had hoped for in retirement. The common 4% annual retirement savings withdrawal rate, for example, dictates that $250,000 would provide only $10,000 a year in retirement income.
In summary, despite some reports to the contrary, and despite the fact that stocks and bonds are at or near record highs, a retirement crisis is still in our future.
Some Terrible Investing Advice For Millennials & Anyone
Shifting gears just a bit, but staying on today’s topic of investing for retirement, I want to turn our attention to what I consider to be some of the worst investment advice I have seen in my 38 years in this business.
The terribly misguided investment advice came from one James Altucher in the form of a video posted on the popular BusinessInsider.com website on April 20. The investment advice was so controversial that numerous financial writers took serious issue with it almost immediately.
The very next day after Altucher posted the video, respected Barron’s financial writer Jack Otter ripped it to shreds (see