Workers are more pessimistic than ever before about their retirement prospects. Employees feel less confident about their ability to retire than at any other point in the past two decades, according to the latest installment of a 21-year-old Employee Benefit Research Institute and Mathew Greenwald and Associates annual survey. But this pessimism about retirement could also be viewed as the first time employees have realistically assessed their retirement preparedness. "People are increasingly recognizing the level of savings realistically needed for a comfortable retirement," says Jack VanDerhei, EBRI research director and co-author of the report. "Far too many people had false confidence in the past." Here is why you probably won't be able to retire at age 65.
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Not saving enough. The proportion of workers who say they have saved something for retirement has declined from 75 percent in 2009 to 68 percent this year. Just 59 percent of workers say they or their spouse are currently saving. Most people have accumulated very little for retirement. Over half of those surveyed (56 percent) have less than $25,000 in savings and investments, excluding the value of their primary home and traditional pension plan. And 29 percent of Americans say they have less than $1,000. When workers are asked to evaluate their progress in planning and saving for retirement, 70 percent say they are behind schedule, up from 55 percent in 2005. "We have not yet changed that sense of being behind into action to catch up," says Mathew Greenwald, president of Greenwald and Associates and coauthor of the report.
Don't know how much to save. Only 42 percent of workers have tried to calculate how much money they will need to save in order to live comfortably in retirement. Most of the people who do have a savings goal simply guessed how much they should accumulate (42 percent). "Many people don't have a clue how much income they are going to need," says VanDerhei. "It's so important that people use retirement calculators or consult financial professionals to get an idea of where they need to be." But just 21 percent of retirement savers have consulted a financial adviser and only 7 percent have used an online calculator. The savings goals they set ranged from less than $250,000 (31 percent) to $1 million or more (17 percent). Another 41 percent of retirement savers are aiming to save between $250,000 and $999,999.
Health care and insurance costs. Exactly half of the workers surveyed say they don't feel confident that they will have enough money to pay for medical expenses throughout retirement, up from 32 percent in 2008. Only about a quarter (27 percent) of retirees have access to health insurance from a former employer and companies are increasingly eliminating health care coverage for future retirees. Many retirees (86 percent) also say they are concerned that the cost of Medicare premiums will rise faster than inflation. EBRI estimates that a couple with median drug expenses will need $158,000 to have a 50 percent chance of having enough money to cover all their out-of-pocket medical expenses in retirement.
Long-term care expenses. Medicare only covers relatively short-term nursing home stays. If you should need full-time care for a longer period of time, you will be expected to be able to pay for it yourself. Some 60 percent of workers don't feel confident about their ability to pay for long-term care expenses if they become unable to take care of themselves.
Early withdrawals. Many workers take money out of their retirement accounts before they exit the workforce. Just over a third (34 percent) of workers report they had to dip into their savings to pay for basic expenses within the past 12 months. A similar proportion of retirees (33 percent) say they had to take more than planned from their savings and investments to pay their bills.
Too much debt. It's difficult to save for the future when you are still paying off past purchases. Some 63 percent of those surveyed describe their level of debt as a major or minor problem.
Few guarantees. One of the biggest challenges of planning for retirement is that you must save enough to finance an unknown number of years. Most retirees (91 percent) receive one source of income that is guaranteed to last the rest of their life: Social Security. But only about half or less of retirees receive income from a 401(k), IRA, pension, cash balance plan, or other investment accounts. Many workers are optimistic that they will be able to secure a second source of guaranteed income in addition to Social Security. For example, 56 percent of workers expect to receive benefits from a traditional pension plan in retirement. However, only 37 percent of those surveyed have access to this benefit from a current or previous employer. The other 19 percent must be hoping that they will be able to secure a pension from a future employer, despite the fact that many private-sector employers have been freezing their pension plans or closing them to new hires. Those without a second guaranteed source of income must figure out a way to make their savings last the rest of their life on their own.
Higher retirement age. If you sign up for Social Security benefits at the same age as your parents did, the checks may replace a smaller proportion of your income than previous generations collected. That's because the retirement age at which you can claim the full benefit you are entitled to is increasing. The full retirement age used to be 65 for people born in 1937 or earlier. But for most baby boomers the full retirement age is 66. And the age will further increase to 67 for those born in 1960 or later. Payouts are reduced for everyone who signs up before their full retirement age. Many workers (76 percent) are concerned that the age they become eligible for Social Security retirement benefits could be further increased before they retire.
Delayed expectations. Workers are becoming increasingly able and willing to work during the traditional retirement years. The percentage of workers who expect to retire after age 65 has increased from 11 percent in 1991 to 36 percent in 2011. And 74 percent of current workers say they plan to continue to work for pay in retirement. "Many people are planning to work longer and retire later because they know they simply can't afford to leave the work place — both for the paycheck and for the benefits," says Greenwald. Just 7 percent of workers say they plan to retire before age 60.
Unplanned retirement. Workers don't always get a choice about when they will retire. Almost half (45 percent) of retirees say they left the workforce earlier than they initially planned to. Many of these retirees say they were forced into early retirement by a health problem or disability (63 percent), a downsizing or business closure (23 percent), or having to care for a spouse or other family member (18 percent). Some people retire in frustration when their job is too inflexible to combine with care giving responsibilities. Sometimes a layoff turns into retirement if you can't find another job.