The Big Retirement Disconnect

Egypt is not the only place of turmoil now with a big river flowing through it. Denial is every bit as powerful here in the U.S., and no place is it flowing stronger than in our retirement plans. EBRI, which is a nonprofit research group, releases an annual retirement confidence survey which reflects the preparation (or lack thereof) and attitudes of workers and retirees. The latest survey shows that we, as a nation, are still woefully underprepared for retirement. And our individual solutions are simply not grounded in reality.

For instance, how are we doing in terms of money saved for retirement?  About 30% of workers have less than $1,000 saved for retirement! 56% have less than $25,000!! Depending on the desired retirement income level, $25,000 might last a year or two in retirement, and then an average worker would be living on Social Security alone. And we know the solvency issues that the Social Security system faces, but that’s another subject. The survey does reveal some “okay” news, and that is that about 60% of all workers are currently saving for retirement— unfortunately just nowhere near enough money is currently going into savings.

One common solution that many workers are now accepting as reality is the idea of working longer, or simply working in retirement. Almost 75% of current workers plan to work in retirement. But the survey also reveals that among current retirees, only about 25% actually work for pay—a huge disconnect. The plan is to work in retirement; the reality is maybe one in four retirees actually gets work. More denial of retirement reality.

The survey also found that about 1/3rd of workers believe they need $250,000 or less in savings to support them in retirement. If we assume an average worker will live 25 years in retirement, that means the worker thinks he needs about $10,000 per year from savings plus Social Security to make ends meet. The average annual benefit in early 2011 for Social Security comes to about $14,000. Add $10,000 in savings, and the average worker believes he can live on roughly $24,000 per year. Let’s give him the benefit of the doubt and assume he is married; his spouse is in the same financial situation, so now they have a combined household income (before taxes) of about $48,000. Compare that to what you’re living on now; can you live on $48,000 per year in retirement and enjoy the same level of lifestyle you have now? For many workers, this is one more sad example of denial.

If there’s any good news in the EBRI survey, it’s that more workers are starting to face up to retirement reality and acknowledge their problems. But knowing something is a problem and doing something to solve it can be a big disconnect (witness Congress and the huge federal debt). The prior Egyptian government lost touch with its people (denial), and those people rose up and did something to correct the problem. Will American workers do the same when it comes to their retirement savings plans? Or will we just continue floating down the river of denial? Retirement revolution starts with you. What are your plans?

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About Mike Wilson

Michael L. Wilson, MBA, CFP®, CRC®, is the owner of Integrity Financial Planning. Prior to founding Integrity in 1998, he worked for two years as a faculty member at the College for Financial Planning in Denver, training other financial advisors. Mike has 10 years of experience in the mutual fund industry, having worked with Fidelity Investments and Invesco Mutual Funds. He holds an MBA in Finance from Baylor University. Learn more about his work at www.integrityplanner.com.
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