March is the month everyone should mark down in their calendars as “retirement awakening month.” That’s because every year since 1991 the Employee Benefit Research Institute (EBRI) has released its Annual Retirement Confidence Survey results in March (www.ebri.org). This year, the results were not comforting at all and it begs the question, Why? With all of the information about retirement coming from seemingly every direction, including financial magazines/newspapers, brokerage firms, insurance companies, investment advisors, television news shows, etc. why are people still having a difficult time feeling better or more confident about retirement?
I can’t just blame the worst financial crisis in decades as the primary reason why retirement confidence remains low because even during good economic times confidence was not all that high. However, results for this year are reflecting a much tougher employment environment, and that does weigh on people’s ability to save toward retirement. But there is something deeper going on here. Two facts from the EBRI Survey stand out to me:
1.) Many workers report they have very little in savings and investments, or more specifically, 60% of workers report the total value of their household’s savings and investments, excluding the value of their primary home, is less than $25,000, and
2.) More than half of workers (about 56%) report they have not tried to calculate how much money they will need to save by the time they retire so they can live comfortably during their retirement years.
There are many other results worth mentioning in this survey, but I want to focus primarily on the two above. It is clear workers are not saving enough for retirement. Regardless of how the stock market is performing, something is preventing workers from increasing their savings rate. But more importantly, more than half of those surveyed haven’t even performed the calculation necessary to figure out how much to save! It’s almost as if they are too frightened to figure it out or they just don’t know how to go about doing it. I believe it is a combination of both—they are afraid to find out and they don’t know where to begin. According to the Federal Reserve’s most recent figures, the median family 55 to 64 had $98,000 in retirement accounts. To put this in perspective, some people, depending on their lifestyle, may need $90,000 of income to meet expenses in one year! Of course, they may have other income sources (Social Security and/or pensions) to help support their income needs other than investment assets, but a $100,000 portfolio is not going to be enough to support a rising income (keeping up with inflation) in retirement for 30 plus years. And with today’s life expectancies increasing due to quality medical care, being retired for 30 years is not impossible.
I truly believe that seeking the help of a financial professional well versed in retirement planning, and not just in investments, is the right way to go for most people concerned about retiring comfortably. A competent advisor will ask the right questions and gather appropriate information about your goals and objectives so he or she can thoroughly assess your situation. If the advisor’s solution is selling you an annuity or some other product instead of performing a needs analysis, then you are not dealing with an advisor, you are dealing with a salesperson. Your retirement is too important to be “sold” anything other than how you can retire comfortably.
Hopefully, you don’t fall into the 60% statistic in this survey. But if you do, now is the time to develop a serious retirement plan and get the help of a professional advisor to put you retirement savings on the right track.