There is work to be done in helping near-retirees to more accurately estimate their financial needs when they leave the workforce, says a recent study.
Barely more than one-quarter of the older workers correctly estimated what they would need in order to maintain their standard of living during a time when the inflation rate is 3%, the Insured Retirement Institute (IRI) says in “Retirement Readiness Among Older Workers 2021.” The report is based on the responses they garnered in March 2022 from 990 Americans ages 40-73 who work part-time or full-time.
More specifically, the IRI says that just 26% were correct about what they will need for that purpose 10 years from now.
They have a better grasp on Social Security’s impact, IRI found—42% knew how much they will receive from the system each month; however, 40% also overestimated that figure.
Further, IRI reports, more than half of respondents said that they will need more than $55,000 per year, and one-third think that they will need more than $75,000.
And for good measure, half said they will retire at age 65 or younger and one-third think they will do so before their 65th birthday.
Savings
Not only are expectations off, so are the savings themselves that help determine how close a retiree will come to living as they had before leaving the workforce—and whether they will meet their expectations regarding yearly income during retirement. IRI says that:
- 51% of the respondents had saved less than $50,000;
- 57% save less than 10% of their income; and
- 33% save less than 5% of their income.
Confidence
Confidence is not high among the respondents to IRI’s survey. Just a little more than 40% think their retirement income will be sufficient.
Some Good News
The good news, perhaps, is that the respondents—in fact, strong majorities of them—evinced some recognition that their saving habits may not be sufficient to meet their expectations.
| Age Group | Wish They Had Started Saving Earlier | Wish They Had Saved More |
| 40-45 | 62% | 63% |
| 46-50 | 62% | 66% |
| 51-55 | 79% | 61% |
| 56-61 | 69% | 66% |
| 62-66 | 65% | 66% |
| 67-73 | 71% | 77% |
| All ages | 67% | 65% |
What this Means
“Failing to understand the amount of monthly income that retirement savings can generate could lead to overly optimistic retirement income expectations and hasten the depletion of retirement funds,” said Frank O’Connor, IRI Vice President, Research, in a press release.
O’Connor continued that it is “critically important” that the effect of inflation in eroding retirement savings be understood—and that consumers better understand how important it is to invest their retirement accounts in a way that provides better insulation against inflation.
Not only that, argues O’Connor, financial literacy and retirement planning fundamentals are “critical” to individuals setting up secure retirement finances.
The report also argues that encouraging employees to save more “must be a high priority” for the retirement industry as well.
- Log in to post comments