As a lifelong dieter, I know one of the secrets of losing weight is to keep a food journal, or as they say at WeightWatchers: Scribble before you nibble; write before you bite. It turns out, the majority of successful retirement savers rely on a written plan, too.
The new Wells Fargo Affluent Retirement Survey released Thursday shows that 71% of affluent Americans with $250,000 or more in investable assets have a written retirement plan, compared to just 43% of those who have accumulated less than $250,000.
Not surprisingly, the overwhelming majority of those with bigger investment portfolios are more optimistic about their prospects for a secure retirement, more comfortable with investing in the stock market and are less likely to expect to have to work for pay in retirement than those who have saved less.
What is surprising is the incomes of the two groups aren't that different. Two-thirds of the affluent savers in this telephone survey of more than 1,800 Americans between the ages of 25 and 75 have annual incomes of $150,000 or less. The majority of the lower saving group has an annual income of $100,000 or less. Yet the size of their nest eggs is wildly different. The median balance of the affluent group was $500,000 compared to just $60,000 for the less affluent group.
The majority of the affluent respondents said they used detailed planning and calculations to estimate the percentage of their current household income needed to live on in retirement while most of those with less than $250,000 in assets said they guessed at how much they would need.
“What is striking about the affluent is that their overwhelming confidence is not from guessing what they'll need, but from disciplined saving, watching their spending and detailed planning,” said Karen Wimbish, director of Retail Retirement at Wells Fargo.
While these two groups behave differently when it comes to planning, spending and saving, they share one trait in common: They both grossly underestimated their health care expenses in retirement. The affluent group expects they'll need $60,000 for out-of-pocket healthcare expenses in retirement. The less affluent group believes they'll need about $49,000.
In reality, the out-of-pocket health care costs for a married couple is likely to total about $250,000 over a 25-year retirement, said Wimbish. That assumes about $10,000 per year to pay for deductibles, co-payments and services that Medicare doesn't cover such as dental, hearing and vision care. It does not include long-term care costs.
“This is where financial advisers can play a crucial role,” said Wimbish. “They can make sure they are talking to their clients about health care costs and factoring it into their retirement income planning.”
(Please join me for the third and final InvestmentNews webinar on Women and Investing on Tuesday November 20 at 4 p.m. ET. Our focus is managing longevity issues and we will discuss health care and long-term care costs in retirement with our panel of experts: Ron Mastrogiovanni of HealthView Services, Katy Votava or Goodcare.com and Tom West of Signature Estate & Investment Advisors.)