No one wants to be a statistic, but when it comes to retirement preparedness and confidence, everyone falls somewhere in the spectrum.
You’re either part of the 58% of workers who are at least reasonably confident about having enough money for retirement, or you’re in the parts of the populace that are significantly more nervous about their future. You either have a financial plan, which is boosting your confidence, or you lack a plan, which is holding your outlook down.
Sift through the statistics in the Employee Benefit Research Institute’s 2015 Retirement Confidence Survey, and you ultimately see that the newest research study on retirees breaks people down into two of the oldest of classifications: Haves and have-nots.
The good news is that most people actually can choose and work toward the result they want, the statistic they want to fall into. While there is no denying that circumstances dictate which side of the line some people fall on, the EBRI statistics also show that choices help to determine not only how well someone prepares for retirement but how they feel about their ability to live out their days in comfort.
What you need to learn from the top end of the retirement confidence survey is what the group of “haves” actually, well, has.
It’s not particularly shocking, but it will be a good measuring stick for your own preparedness and confidence.
Here are things that the confident worker has when they consider their future finances:
1. Retirement savings.
Two-thirds of workers reported that they or their spouses have saved for retirement (a number that rises to 80% of full-time employees).
Among the workers who have a retirement plan on their own or through their spouse, more than one-third reported having saved at least $100,000 compared with just 3% of those who do not have a retirement plan.
2. A plan.
It’s not just that more planning leads to more savings, it’s that it breeds confidence.
Less than half of workers surveyed reported having tried to calculate how much money they will need to save by the time they retire in order to live comfortably. That’s alarming because nearly two in three workers said they feel behind schedule when it comes to planning and saving for retirement.
The truth is that without some sort of plan — an assessment of needs compared with income, with contingency plans for employment loss and health-care/disability concerns — a person’s “confidence level” is as much a guess as whatever they think they will need to live on when they stop working.
What’s more, the EBRI survey showed that workers and retirees spent less time on retirement planning than they do planning for the holidays.
If you don’t spend sufficient time planning for retirement, you won’t need to spend much time planning for vacations, holiday celebrations and social events in retirement, as you may not be able to afford them.
3. Reduced debt.
Workers and retirees were less likely this year to view their level of debt as a problem. At the very least, retirement savers should see debt as manageable, so that it isn’t a real impediment to savings.
4. The ability to save more, and the follow-through to act on that savings capacity.
Most experts believe that savings growth for individuals is part of a virtuous cycle.
Behavioral-finance experts say you start saving, see the money start to add up, and are inspired to save more. In time, you commit more money to savings; this happens from the smallest levels, starting with people trying to fill piggy banks and going up to retirement plans.
To me, the most interesting dichotomy in the EBRI research shows up here: While half of all workers said they are not saving for retirement due mostly to day-to-day expenses and the general cost of living, seven in 10 workers said they could save $25 a week more than they currently set aside.
Obviously, some of the people saving nothing could at least get started, and others could step up their set-asides. You must take a first step at some point.
VanDerhei noted that what he finds most alarming nearly every year is the number of workers he talks to “who don’t want to start saving yet or don’t want to start saving enough yet,” based on the rationale that they can defer their retirement age beyond 65. The problem is that “fully 50% of retirees were forced to leave the workplace earlier than they had planned,” either due to job loss, illness, diminished skills and more.
“It’s a much, much more risky plan to say ‘I won’t start saving now, I will wait until later and defer my retirement age if I need to,’” VanDerhei said, “because in many of those cases, you’re going to be one of those unlucky people who does not have the flexibility to decide they want to defer retirement age.”
The “haves” take actions they can control now instead of waiting for something to work out for them later.
5. Realistic expectations.
The fastest way to improve your confidence about your ability to retire comfortably is simple: Lower your standards.
You need a lot less to be comfortable in retirement if your idea of comfort is a cushy chair and reruns of “Wheel of Fortune” than if you plan to travel the world.
Look at what you want, but come up with contingency plans, so that you can deal with a shortfall of income or working years, but also so that you change your expectations based on what you expect to amass.
In the end, the pursuit of a comfortable retirement should be sufficient motivation to save, reduce debt and plan, but on the off chance that it doesn’t provide ample incentive, then start picturing what your life will be like when you fall short of your savings goals and wind up on the wrong side of the statistical ledger.
By Chuck Jaffe from marketwatch.com