Studies and online calculators suggest various figures Americans will need to live comfortably (or at all) in retirement, but does that mean they feel they’ll be ready when the time comes? Yes and no.
About half of Americans (51%) expect they’ll be financially comfortable in retirement, according to a new report by analytics and advice firm Gallup, and 46% said they don’t believe they will be financially comfortable when they retire. Though they are not as pessimistic as non-retirees were right after the Great Recession, it is much higher than when Gallup first began tracking the sentiment of retirement preparedness in 2002 to 2004, when it was 32% to 36% of non-retirees who didn’t expect to live comfortably in retirement.
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Other findings include:
• The biggest financial concern in retirement? Not having enough to cover a medical emergency, Gallup found. It’s a fair concern for many, especially given the average American couple retiring this year could expect to spend upwards of $280,000 in retirement on health care alone (not including long-term care), according to Fidelity Investments. That figure will continue to rise, too.
• Income is another concern for Americans, and financial discomfort is highest for those who make less than $30,000 a year in retirement. More than half (54%) of retirees who made less than $30,000 over the last four years said they did not have enough to be comfortable. More than eight in ten retirees who make between $30,000 and $75,000 say they are comfortable in retirement, and comfort is nearly universal for the retirees who have household income of $75,000.
• Younger Americans are more positive about retirement than older ones — until they get to their 30s. After their 30th birthday, their projections of retirement resources begin to solidify and they are less optimistic.
Here’s the bad news: Other studies suggest Americans are not prepared for retirement, even those closest to retiring. One in three Americans have less than $5,000 saved for retirement, and one in five have no savings at all, according to the recent 2018 Planning & Progress Study by Northwestern Mutual, which surveyed more than 2,000 Americans 18 and older. A third of baby boomers, the generation nearest to retirement, has between $0 and $25,000.
Why so unprepared? Many people rely on instant gratification, meaning they prefer seeing their money used today than saving for the future, according to Rebekah Barsch, vice president of planning at Northwestern Mutual. People also can’t fathom how much they’ll need in retirement, for all of the expenses during that time frame, which can cause them to be overwhelmed and not plan properly at all. “There’s a general lack of knowledge around preparing for a 30-year expense like retirement,” she said. Another reason: Not all employers offer their employees retirement accounts, which can be a major help in jumpstarting retirement savings for many Americans. Fifty years ago, Americans’ retirement savings came from employer-backed pensions, whereas now Americans are on the hook for saving for their own futures.
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But there’s also good news. People who already retired are more optimistic about their finances in retirement. Since 2005, 78% of retirees this year said they have enough money to live comfortably, and that has been the general consensus since 2005 (ranging between 72% and 79% of retirees who feel this way). That means there is a gap of 27 percentage points between nonretirees who feel they will be financially comfortable and retirees who say they are. Another good sign: About 54% of 50- to 64-year-old nonretirees in 2002 to 2004 who said they thought they would have enough money in retirement — when Gallup interviewed retirees in the same generation this year (now aged 65 to 80), 77% said they did have enough money to retire after all.
Still, Americans can do better about preparing. People should create a financial plan encompassing all estimated expenses in retirement (renting a home or paying off a mortgage, taxes, health care, and vacations and hobbies, for example), as well as begin to stash away cash in a retirement account (or increase contributions). Other ways to help your future self: know how much you are expected to get in Social Security, which can be done on the Social Security Administration’s website, and consider working longer or taking on a part-time job in retirement.