Scary: Retirement expectations, goals unrealistic

Oct 28, 2012 @ 12:01 am

I read a lot of retirement readiness studies, but frankly, this latest Wells Fargo & Co. telephone survey of 1,000 middle-class Americans between 25 and 75 scares me. It displays a real disconnect between what Americans need to do and what they are doing.

For example, when respondents were asked how much money they need to support themselves during retirement, the median answer was $300,000. But to date, the median savings of the respondents is just $25,000.

How much do average Americans think they can afford to withdraw from that meager nest egg each year? The typical response was 10% — more than double the generally accepted 4% rule of thumb for a safe withdrawal rate.

What is the solution? Work longer, they replied.

Yet a third of the respondents admitted that they would have to work until at least 80 in order to live comfortably during retirement, even though most said that their bosses wouldn't want them hanging around that long.

For many, their retirement income goals aren't very realistic. About a third of the respondents estimated that their retirement income will be about half or less of their current annual income, compared with the standard 75% of pre-retirement income considered a bare minimum for most retirees.

"GUESSING GAME'

How did they come up with these predictions? Most of them — 75% — guessed.

“Retirement has become a guessing game,” said Laurie Nordquist, director of Wells Fargo Institutional Retirement and Trust. “But people can't afford to approach 20-plus years of their life by ignoring the facts.”

That is where financial advisers can help, working with business owners to set up retirement plans and with individual clients to impose a reality check of how much to save, how to invest and how much they can afford to spend in retirement.

“Advisers can help get the message out there,” Ms. Nordquist said.

Social Security continues to be a strong component of retirement planning for the middle class.

More than 70% of nonretired survey respondents said they would prefer to delay collecting Social Security benefits to receive higher payments. That is the opposite of standard procedure today, when the majority of retirees claim Social Security benefits before their normal retirement age even though it means smaller benefits for the rest of their lives.

Maybe there is some hope, after all.

mbfranklin@investmentnews.com Twitter: @mbfretirepro

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