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Are Americans 'winging' retirement plans?

A new survey indicates that many people are simply guessing how much money they'll need to save.

By MSN Money Partner Aug 16, 2012 10:10AM

This post comes from Richard Barrington at partner site MoneyRates.com.

 

MoneyRates.com on MSN MoneyWhen it comes to retirement savings, many Americans seem to be "winging it" -- or heading for retirement without a realistic plan of how to fund it.

 

Image: Money in nest (© Steven Puetzer/Getty Images/Getty Images)Or so suggests a recent survey (.pdf file)  by the Transamerica Center for Retirement Studies. The survey indicates that "retirement planning" is a very loose concept among Americans. In many cases, the approach could be better described as wishful thinking.

 

The following are some points of concern raised by the study:

 

Savings rates remain very low.

The median contribution level for workers in 401k or similar plans is 7%. This is up from 6% in 2011, but still too low a savings rate to fund a comfortable retirement. Think about it: Retirement is likely to last roughly half as many years as a career. How can you expect to replace most or all of your income if you are setting aside only 7% of that income each year? With diminished expectations for the stock market, and bond yields and savings account interest rates approaching zero, most people are not going to be able to grow their way to adequate funding. Saving more is the only way to make it work. (Post continues below.)

Retirement targets are also too low.

The reason savings rates are so low is probably that people are underestimating how much they will need in retirement. According to the Transamerica study, the median savings goal of American workers is $500,000 -- but how many younger workers understand that inflation is likely to cut the value of that amount by at least half by the time they retire?

 

Too many people are relying on guesswork.

It's no surprise that savings rates and retirement targets seem off base, because people simply guess at them. The Transamerica Center found that nearly half (47%) of respondents chose a retirement target by guessing.

 

Funding levels are off target.

While the median retirement target is $500,000, the survey found that 39% of workers in their 60s had saved less than $250,000. That leaves them with too much ground to make up in too few years.

 

People seem to be betting on good health.

The survey found that most Americans plan to retire after age 65, or not at all. Also, most plan to work after retirement. Working longer may be an inevitability for many people, but it is hardly an ideal retirement planning solution. After all, it means staying healthy enough to work productively, and that is no sure thing for people older than 65.

Many start planning too late.

It's only natural that older workers are more focused on retirement planning than younger ones, but it is also unfortunate. The younger you are, the more powerfully you can impact your retirement savings, because you have that many more years to contribute money and benefit from investment returns. The survey found that people in their 60s are more likely to have a retirement plan and work with a financial planner than people in their 20s. The problem is that by the time you are in your 60s, your options for significantly improving your retirement funding are very limited.

 

Retirement planning is a very important individual responsibility. The Transamerica Center survey should be a wake-up call for Americans to take more positive action to plan for their retirements.

 

More on MoneyRates.com and MSN Money:

 

22Comments
Aug 16, 2012 11:46AM
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Well, I started planning early in my 20's.  Then came the dot.com crash followed by the more recent financial crisis.  Now my pension plan is being raided so it won't be as expected, and finding a job that pays well enough to save for retirement isn't as easy as it once was.  So much for planning!

I'm not saying you shouldn't try to plan for a decent retirement but the odds are stacked against you no matter how well you plan.
Aug 16, 2012 4:28PM
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People rely on guesswork because no one really knows what the future holds.  How much is a gallon of gas going to cost in 40 years?  A gallon of milk?  Property taxes?  How much Social Security am I going to get?  Will there even be Social Security?  There are a lot of gray areas and all you can really do is make more money, save as much of it as you can, and pray to god that everything works out.
Aug 16, 2012 4:11PM
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Never give up. Never. If you get knocked down, get back up. I never thought I would live to graduate from high school times were so bad at our house. Times change for good & bad. Look around and don't run with the herd. During the dot coms everyone was getting rich on stock and no one wanted gold or silver. My limit was no more than $400 an ounce on gold and silver $7.00. Look at tomorrow like the stock people. I'm old now but life was not a bowl of roses. Do not defeat yourself. Let others try to do it. If I were younger I would probably purchase a duplex at today's cheap prices. Rent out one side. Have faith. Stay in the habit of saving & being independent as much as you can. You never know what is coming over the horizon tommorow. Hang in there, it will get better, it always does.
Aug 16, 2012 4:30PM
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Where do you put the money you are trying to save when interest rates don't match the rate of inflation?
Aug 16, 2012 4:17PM
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Americans need to stop blaming everyone else (rebubs/demos/bankers/rich/poor) for their lack of saving and financial education.  If Americans would have educated themselves, so that THEY can make good fiscal decisions, people would be in much better shape in regards to retirement savings.  Do not depend on the government, or your employer to provide for YOU...simply just take care of your own personal finances.  Blessings....  

Aug 16, 2012 7:00PM
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While a lot of this is true, it is really just an advertisement by the financial planner industry to get more business.  Part of me wants to go to one just to hear what they have to say.  The other part of me questions why I want to hear someone tell me I need to put 3X more money than I currently have available to me in a retirement account.  For a lot of us "guessers", we're putting away what we can and knowing we'll have to live within the limits of what we've got when we get there.
Aug 16, 2012 3:57PM
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Yet pension has become a bad word according to the right wing anti-government jerks who are running for jobs in the government. Hypocrisy can be such a foolish ugly thing.
Aug 16, 2012 3:59PM
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Also all the more reason we should not privatize social security or vouchers or whatever the latest scam so the fox or tea drinking elephant can guard the henhouse.
Sep 29, 2012 2:23AM
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For those of us struggling just to make ends meet, retirement planning is a pipe dream.  If I have $50,000 saved at age 55 I feel lucky.  Although in good health now I'm not gurarenteed a job in 3 months and I am not old enough for medicare which might not be around much longer anyway.  If I am out of work and can't get unemployment,  I certainly can't afford the $1000 a month that my COBRA will cost. 

 

I have spokent to many many people in my same shoes.  I think this survey drastically underestimates the problem.

Sep 28, 2012 7:31PM
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Too many do not have a plan for retirement and are not dealing with the need to save. Look into Index Universal Life-provides income protection and investment savings for retirement. There  are companies that cater to middle class families-not only the "rich"
Sep 28, 2012 7:34PM
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Just another MSNBS ad.  Fact is that with the Obummer depreciation there is no money.  Lost my business and 125 people lost their jobs as a result.  I'm 70 and have learned to live without.  Food prices have doubled in the last 4 years but of course the gov says up 1.3%; guess they dont shop.
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