Only 21% of us 'very confident' we can retire comfortably
Most Americans are not very confident they’ll have enough money to live comfortably throughout their retirement. In fact, just one in five (21%) workers are “very confident,” according to the Employee Benefit Research Institute’s just-published 2016 Retirement Confidence Survey.
Worse yet, the percentage of workers very confident — despite the millions spent on investor education — hasn’t changed all that much in the 26 years EBRI has been tracking retirement confidence. On average the figure has floated around 22%.
The good news: In its research over the years, EBRI has identified ways for workers to boost their retirement confidence. Here’s a look at some of them.
• Get a plan and participate. Having a retirement savings plan — an IRA, a 401(k), a traditional pension or a similar plan — can help boost your confidence, according to EBRI. In fact, workers who have money in a 401(k), IRA or defined benefit plan are more than twice as likely as those without any of those plans to be very confident — 26% with a plan vs. 10% without a plan.
What to do? Participate in and contribute your employer-sponsored retirement plan. At a minimum, contribute enough to get the entire match from your employer, says David Laibson, a professor at Harvard. On average, employers contribute 50 cents to your plan for every dollar you invest up to 6% of pay.
If you don’t have a workplace retirement plan, set up an IRA with a brokerage or mutual fund firm and sign up to have money automatically deducted from your checking account on a regular basis.
For some savers, a managed 401(k)'s tailoring beats a target date fund
• Reframe saving as future spending. People lack self-control and have a preference for spending money today instead of saving for tomorrow. “An approach for overcoming this situation and build confidence is to reframe saving for retirement as a future spending activity,” says Victor Ricciardi, a professor at Goucher College and co-editor of the book Investor Behavior: The Psychology of Financial Planning and Investing.
For example, picture yourself at 65 spending your future retirement savings on playing golf or taking a yearly vacation. “When the savings decision is associated with a future spending action, this will dramatically increase the chances a person will reach their long-term retirement investment goal,” he says.
• Calculate how much you’ll need in your nest egg. Most people (52%) don’t crunch the numbers, according to EBRI. Of those who do, four in 10 just guess. Don’t feel like guessing or crunching the numbers? Consider these targets from Fidelity: Save at least 10 times your salary by age 67; eight times by age 60; seven times by 55; six times by 50; four times by 45; three times by 40; two times by age 35; and one time by age 30.
Should you dump your investment adviser?
• Hire an adviser. Planning for retirement can be complicated. But workers and retirees who use a financial adviser tend to be more confident about affording retirement, according to EBRI. Best advice if you’re nervous or distrustful? Consider one who’ll charge you a fee or by the hour to review your retirement plan.
• Retire later. Retiring later gives you more time to save and less time to spend your money. “Plan to retire no earlier than 70 if you are healthy enough to keep working,” says Laibson. This plan's not foolproof, however. The EBRI study notes that almost half of retirees retired earlier than planned. Reasons include hardships such as a health problem or disability.
• Reduce expenses. According to the EBRI study, 42% of retirees who have higher-than-expected expenses cope by reducing their spending. For his part, Laibson suggests that workers and retirees look for novel ways to cuts costs. “If you have two cars, think about downsizing to one or none,” he says. “Uber, Lyft, and other ride services — not to mention public transportation and bike paths — might save you a fortune in parking, insurance and depreciation.”
Robert Powell is editor of Retirement Weekly, contributes regularly to USA TODAY, The Wall Street Journal and MarketWatch. Got questions about money? Email Bob at rpowell@allthingsretirement.com.