Is $500K the Magic Retirement Confidence Number?

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Published May 09, 2013

| FOXBusiness

It’s the million-dollar question facing every baby boomer: do you have enough for retirement? Actually, one million dollars isn’t a big enough nest egg, according to some experts.

We’ve been told so many different ways and methods to saving and calculating our retirement accounts, it's no wonder so many of us have thrown in the towel and hope for the best. Even the most detailed savings formulas have unpredictable factors like the stock market performance, life expectancy and job length.

Consumer marketing research company Maritz Research conducted a recent retirement study that shows $500,000 is the "tipping point" for retirees to feel confident. The study measured the mindsets and behaviors of 1,000 recent and near retirees ages 50 - 70 with a minimum of $100,000 in savings. Rich Brose, senior director of strategic consulting for Maritz Research's Financial Services Research Group, who directed the study discussed some of the findings and what boomers should learn from the results. Here’s what he had to say:  

Boomer: Is “retirement age” a thing of the past?

Brose: About 60% of people who have recently retired or who are nearing retirement consider a "retirement age" to be an outdated concept. Half of the survey respondents within five years of retiring believe they will continue working in some capacity during their retirement.

The age at which people plan to retire varies, and many are delaying leaving the workforce past age 65. On the other hand, personal and marketplace circumstances are leading others to retire earlier than they had planned. About one-third of those who have retired within the past three years were offered early retirement as they were caught up in a downsizing or unable to work due to a disability

Boomer: How did the survey come about using $500,000 as a tipping point for the confidence and well-being of retirees?

Brose: The study assessed the attitudes and behaviors of near and recent retirees with varying amounts of retirement savings. As we explored the results, clear differences emerged among those who had amassed at least $500,000 in their employer-sponsored retirement plans, pensions and IRAs.

People with asset levels at the $500,000 mark are much more optimistic regarding their financial security during retirement. Those with more than $500,000 also are confident they have saved enough money to last through retirement and believe they are prepared for health care expenses. People who have saved between $100,000 and $250,000 share attitudes and behaviors similar to those in the $250,000 to $500,000 range.

Although confidence increases for those with more than $1 million in savings, the clear attitudinal shift occurs at the $500,000 mark.

Boomer: When are people beginning to save and plan for retirement?

Brose: Our research indicates that many people have listened to the advisory community and began saving for retirement early. Nearly half of the survey respondents began saving at least 25 years before they expected to retire, and another 48% began saving between 11 and 25 years before retiring.

Saving early seems to be paying off as those who have been saving for at least 25 years hold about 60% of the retirement assets. Interestingly though, many of the early savers are waiting until they get within 10 years of retiring before they develop their formal retirement plans and determine exactly how they are going to deploy the money they have saved.

Boomer: How are people involving financial advisors as they prepare for retirement?

Brose: Nearly two-thirds of the respondents to our study who have retired within the past three years work with a financial advisor. About 60% of those working with an advisor selected that advisor before they retired, and 84% remained with the same advisor after retiring. Of the 40% of recent retirees who did not have an advisor before they retired, one-quarter began working with an advisor after they retired.

More than half (55%) of the near and recent retirees work with a financial advisor associated with a full service brokerage firm, while about 25% work with independent investment advisors. The remaining 20% of recent retirees work with advisors associated with banks, insurance companies, mutual fund companies and discount brokerages.

Boomer: How dependent are retirees on their employer-sponsored retirement plans to fund their retirement?

Brose: Funds from employer-sponsored retirement plans such as a 401(k) are becoming an increasingly important part of the retirement nest egg. People nearing retirement expect their employer-sponsored plan to provide one-third of their retirement income, up from the 27% reported by those who have recently retired. Meanwhile, reliance on pension income is on the downswing as those approaching retirement expect pensions to provide 22% of their income compared to the 29% pensions contribute to the income of the recently retired. Government payments including Social Security are expected to provide about 20% of income for both groups. The remainder of retirement income is expected to come from home equity, employment and various other sources.

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