Retirement? What Retirement? More Workers Have Gloomy Nest Egg Outlook

Americans' confidence in being able to afford a comfortable retirement has hit an all-time low.

Thanks to tough economic times, state and local budget woes and rough financial markets, more than 1 in 4 Americans currently in the workforce say they’re “not at all confident” about retirement, an increase of 5% over last year.

And that’s a good thing.

At least according to Jack VanDerhei, author of this year’s Retirement Confidence Survey [RCS], a national poll that the Employee Benefit Research Institute [EBRI] has conducted for 21 years.

At the other end of the spectrum, those who described themselves as “very confident” also dropped to a record low- just 13%.

According to VanDerhei, who also serves as the company's chief researcher, after “20 years of false optimism,” folks are finally waking up to the fact that they’re not saving enough.

Analysis of the data indicates that the ones who were once wearing the glasses with the rosiest lenses are now the individuals who are, in VanDerhei’s words, “adjusting their confidence levels down the most. They’re the ones who really need the reality check.”

I Can See Clearly Now….

VanDerhei suggests that the constant barrage of bad economic news hitting consumers since summer 2007 finally made some visit online calculators or meet with financial professionals to take a hard look at how much they have actually saved compared to what they need.

“They realized there’s a big gap. Before, they were just going along blind.” That’s reinforced by the fact that more than 40% of workers admitted they had just been guessing at how big a nest egg they would need.

According to this year’s RCS, 1 in 5 American workers plans to retire at a later age to make up for a lack of savings. But that’s hardly a foolproof strategy; nearly half of those retired today say they left the workforce earlier than planned, primarily because of health issues.

Before you can correct something, “first you have to realize there’s a problem,” says VanDerhei.

"I hope- we’ll see an increase in saving rather than just, ‘I’m going to work past 65.’” He admits there’s no evidence of this is this year’s survey, but is anxious to see if a trend develops. "If you start saving now, you know you’re doing something that will help you. If you wait until you’re 65 [and expect to keep working], that may or may not be an option.”

Shaken, but Hopefully Stirred to Act

According to VanDerhei, the economic turmoil of the past few years has upended our confidence not only in the financial markets, but in the financial-planning process itself. To be fair, the latter has always been based on best estimates--not absolutes. And, given the fact that retirement is likely to last decades, you’ve got to expect that you will need to make adjustments and re-calculations along the way.

Current budget strains at all levels of government have called into question the most basic programs and institutions Americans have relied upon for support and security in their golden years.

“You have no idea what health-care costs will be [or] the future for Social Security or Medicare." says VanDerhei. "If you’re a public employee you don’t know if you’ll have your defined benefit plan. It’s a more uncertain future.”

Indeed, uncertainty is part and parcel retirement planning, starting with the most basic issue: How long will you live? As VanDerhei points out, “If you use ‘average’ life expectancy and expenses, you’ll come up with a target that's good 50% of the time. Would you be comfortable with a target [amount] that would work half the time? No.”

He recommends people plan conservatively. Save more than you think you’ll need and spend less than you think you can. Seek out a financial professional who specializes in retirement planning and/or visit one of the many Web sites that can help you get an idea of how much you will need in your golden years.

In partnership with public and private organizations committed to helping Americans better prepare for retirement, EBRI created the Choose to Save Web site which offers a simple calculator. to help determine nest egg size.

If you’re a baby boomer whose retirement plan is “keep working,” make sure you have a back-up plan. There’s no guarantee there will be a job for you when you’re 66 or that you’ll be healthy enough to do it.

Ms. Buckner is a Retirement and Financial Planning Specialist at Franklin Templeton Investments. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content.