INVESTING | Jul 8, 2024

Helpful Lessons From Today’s Retirees

Retirement confidence is ticking upward, but it has not fully recovered from the record low numbers recorded in last year’s long-running Retirement Confidence Survey, conducted for 34 years by the Employee Benefit Research Institute (EBRI). In this year’s just-released report, 68% of today’s workers and 74% of retirees said they feel very or somewhat confident that they will have enough money to live comfortably in retirement. That’s up from last year’s 64% and 73% respectively, but still below the levels reported in the 2022 survey.

Just 21% of today’s workers and 28% of retirees report being very confident about their retirement finances.

The top retirement-related concerns among both groups center on inflation and the possibility that the government may make changes to the American retirement system.

Lessons for today’s workers

If you’re in the workforce, the EBRI survey contains several helpful roadsigns, pointing the way toward better retirement planning. Among them:

• Let preparedness drive confidence. Every year, this survey shines a spotlight on a glaring gap between the confidence and assumptions made by current workers vs. their actual preparedness and the experience of today’s retirees.

For example, while 68% of today’s workers are somewhat or very confident about how well their finances will sustain them in retirement, 43% of workers age 55 or older have less than $100,000 saved for retirement.

And, while 58% of today’s workers age 55 or older plan to retire at age 66 or older (36% plan to retire at age 70 or never retire), just 19% of today’s retirees actually retired that late.

Another area of disconnect between today’s workers and retirees has to do with working for pay in retirement. Whereas 75% of today’s workers expect to do so, just 30% of retirees actually have.

The EBRI survey has consistently found that a large percentage of retirees leave the workforce earlier than planned. In the latest survey, that was true for 49 percent of today’s retirees. While 39% of those said they retired earlier than planned because they could afford to do so, most early retirees stepped out of the paid workforce because of a hardship, such as a health problem or disability, or because of changes at their company.

• Run the numbers. One finding that seems to remain the same year after year is the percentage of current workers who have used a retirement planning calculator to estimate how much money they will need for retirement and what that means in terms of how much they should be investing now. Only half of today’s workers have taken that step. Those who have run the numbers tend to begin saving more.

(If you are an SMI Premium-level member, have you taken advantage of the opportunity to utilize MoneyGuide for your retirement planning? For a one-time fee of just $50, this powerful planning software will give you the insights you need to be especially well-prepared.)

• Understand Social Security. While most of today’s workers expect Social Security to be a source of income in retirement, fewer than half have reviewed the amount of their benefits at their planned retirement age, and less than 60% have thought about how the age at which they claim benefits will impact the amount they receive. You can gain this information from the Social Security Administration’s website.

• Ditch the debt. For some reason, this year’s survey apparently did not ask about debt. However, in last year’s survey, 62% of workers said debt is a problem for them, and that issue isn’t likely to have disappeared.

While the survey didn’t break debt down into specific types, other surveys have pointed to an increase in the number of people bringing a mortgage into their later years. As we have recommended before, it’s wise to plan to retire your mortgage by the time you retire. And if you plan to refinance, be careful not to reset the 30-year payoff clock to a date that’s past your intended retirement age.

Learning from those who’ve gone before us

One of the best sources of wisdom is the actual experience of those who have done what we plan to do. The EBRI study shows several important dimensions of life for today’s retirees, which provide a helpful roadmap for today’s workers.

Image used with permission.

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