The State of Retirement Planning in the U.S.: Are We Just Winging It?

A new survey suggest that low savings rates are just one of the issues facing future retirees in the U.S.
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When 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.

Or so suggests a recent survey 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:

1. Savings Rates Remain Low

The median contribution level for workers in 401(k) or similar plans is 7%. This is 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 only setting aside 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.

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2. Retirement Targets Are 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?

3. 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 LCenter found that nearly half of respondents chose a retirement target by guessing.

4. 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.

5. 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 over 65.

6. Many People Start Planning Too Late

It’s only natural that older workers are more focused on retirement planning than younger ones, but that 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.

Richard Barrington, a Senior Financial Analyst at MoneyRates, brings over three decades of financial services expertise to the table. His insightful analyses and commentary have made him a sought-after voice in media, with appearances on Fox Business News, NPR, and quotes in major publications like The Wall Street Journal and The New York Times. His proficiency is further solidified by the prestigious Chartered Financial Analyst (CFA) designation, highlighting Richard’s depth of knowledge and commitment to financial excellence.
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