Retirement Planning: Don't Give In to Pessimism

Retirement planning pessimists got you worried? Take this message to heart, along with a little education. Photo: Flickr user Andre Ribeirinho.

It's no secret that when it comes to retirement planning, we Americans are playing a game of catch-up. Sometimes the numbers can seem so overwhelming that it's easy just to throw our hands up and concede that we're headed toward doom and gloom. That's exactly what an article from the Huffington Post did last week, stating that, "retirement at 65 is a fairy tale."

But that's a trap we can't fall into -- least of all here at The Motley Fool. Our purpose is simple: to help the world invest better. When it comes to confronting these bleak retirement-planning figures, that means avoiding the impulse to complain and focusing instead on what we, as individual investors, can control.

First, we must question the conclusions that the pessimists come to. And second, we need to identify concrete steps anyone can make to shore up their retirement plans.

Opinion, meet factThe aforementioned Huffington Post article is a prime example of pessimistic thinking. The author cites a November 2014 reportfrom the Center for a Secure Retirement to come to a host of negative conclusions.

I read the report -- which surveyed 1,000 adults between the ages of 50 and 68 who have between $25,000 and $100,000 in yearly income -- and I'm still trying to figure out how the author made such gigantic leaps in her conclusions.

Here are a few key examples:

While the 45% figure is correct, nowhere does the report mention how or why people entered retirement. It's possible that some were forced into retirement before they were ready. But the fact that such a large portion of this cohort was already retired makes the claim that retirement at 65 is a "fairy tale" seem dubious at best.

The grass is always greener, and the past was always better, right? Actually, if you dig into the numbers, you might be surprised.

As fellow Fool Morgan Housel has shown, this is the biggest retirement myth ever told. For starters, the very concept of retirement only became popular after World War II -- meaning its time in existence accounts for about 0.01% of human history.

And those pensions that were available to "everyone"? According to the Employee Retirement Benefits Institute, the number of Americans with pensions peaked in the 1990s, when 40% of workers had them -- and that includes public employees.

This quote actually comes from the Center for a Secure Retirement's study, not the Huffington Post article:

But even here, there's a noticeable bias at play. Here's what the numbers actually looked like:

Source: Center for a Secure Retirement.

One could just as easily have lumped the middle group into the opposite category and concluded that, "Three-quarters (75%) of respondents were at least somewhat confident about their retirement savings." That isn't to say that this is the "correct" representation of the data, but rather that this data is open to interpretation.

More importantly, concerns about finances are common among people heading into uncharted financial waters, such as retirement. But a Merrill Lynch/Age Wave study found that, by a factor of two to one, those concerns were largely overblown, and the real obstacle that retirees weren't prepared for was the loss of social connections.

Here are steps anyone can take to help themselvesThe most disappointing thing about the Huffington Post article is that, when it came to advice, the simple conclusion was "that we all invest in our health and stay on the job as long as we can."

But this ignores scores of important, viable suggestions that the Center for a Secure Retirement's report made. Among those suggestions:

  • Educate yourself. Of those surveyed, 63% either didn't own mutual funds or did not know the difference between passively managed and actively managed portfolios. This is an important distinction, because actively managed funds tend to cost significantly more and can erode retirement savings.
  • Seek guidance from a financial professional. About 60% of those surveyed did not consult a financial professional for help with retirement planning. The most common reason respondents gave was that they "prefer to make financial decisions on their own." That's fair enough, but among those who did consult a professional, 87% were "very satisfied or completely satisfied with their professional."
  • Practice healthy financial habits. The basic steps of retirement planning are simple: Spend less than you earn and invest the difference. Repeat over and over for your entire working life.
  • Consider your home. For most people, their home is the most valuable asset they own. It's great to have a place to live, but if you're in a retirement planning crunch, consider downsizing to help raise funds.

By acknowledging the cold, hard facts -- but remaining optimistically focused on solutions -- you can greatly improve your retirement planning situation.

The article Retirement Planning: Don't Give In to Pessimism originally appeared on

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