There’s a good reason why April has been designated Financial Literacy Month. It’s an opportunity for Americans to learn about basic financial concepts that affect their daily lives and the fundamentals of retirement planning.
Investigation results published Friday by the Insured Retirement Institute highlights the scope of what Americans need to learn. The research was conducted online in March 2021 among 990 Americans between the ages of 40 and 73.
When it comes to planning for retirement, half of workers 40 and older said they have less than $50,000 in savings. A quarter said they had no savings at all, rising to a third of workers aged 62-66.
With 57% of respondents saying they save less than 10% of their income, it’s no surprise that only 44% think they’ll have enough income throughout retirement.
Because Americans are not saving enough or at all, the survey found that many have aggressive retirement expectations that don’t match their current income.
Take the 62% of workers who currently earn between $30,000 and $75,000 a year and who expect an annual retirement of more than $45,000. IRI noted that they could receive a Social Security benefit of just $25,000, leaving a $20,000 void that they will have to fill using retirement savings or income from another source.
Maybe those workers aren’t doing the math, IRI said. The survey found that only 41% of respondents had tried to calculate the amount of money they would need in retirement.
Despite not having calculated their savings needs and having unrealistic income expectations, 30% of workers surveyed said they planned to retire before age 65 and 16% at age 65. benefits up to age 67.
Budgeting and contingency planning
Add to the inflated income expectations of Americans the survey which reveals that 70% of workers expect not only to have enough income for basic expenses in retirement, but also to have discretionary income for travel and hobbies.
IRI said it is highly unlikely that more than half of workers will be able to manage on Social Security, especially if they retire before full retirement age, like many plan to do so.
Survey participants may also be unrealistic in their contingency plans if they run out of savings.
Sixty-two percent think they can downsize and get by with Social Security if they run out of savings during retirement. Thirty-eight percent said they plan to return to work if they run out of money in retirement.
There are some problems with these scenarios, IRI pointed out. Data from the Bureau of Labor Statistics shows that average annual household spending of about $53,000 for ages 65 to 74, is close to the maximum Social Security benefit for a married couple.
Additionally, Social Security will only pay 78% of projected benefits from the mid-2030s if the system’s deficit is not resolved.
Four in 10 respondents believe Medicare will cover their health care needs, ignoring the fact that they may still face significant medical expenses. Also, Medicare does not cover long-term care.
As for returning to work, that would probably be necessary many years after retirement, as the money is running out. But many people in those straits may not have the marketable skills or good health to return to work.
See the gallery for five things older workers and retirees regret not doing in preparation for retirement, along with the percentage of respondents in each age group who chose that answer.