Retirement crisis: Reality of needing to save sinks in too late for many

Americans’ confidence in their ability to afford a comfortable retirement is at historically low levels.

According to the Employee Benefit Research Institute’s Retirement Confidence Survey released in March, only 14 percent of workers are very confident they will have enough money to live comfortably in retirement.

Many workers report they have virtually no savings or investments, and workers’ expected age of retirement continues to rise, according to the survey.

Sixty percent of workers report that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000.

More than half of workers (56 percent) report they and/or their spouse have not tried to calculate how much money they will need to live comfortably in retirement.

Those findings don’t surprise Timothy Dooley, a certified financial planner and president of Comprehensive Retirement Resources in Woodstock.

“People just ignore reality,” said Dooley, who also offers securities through Raymond James Financial Services. “They’re trading off today’s standard of living.”

Dooley calls it “a retirement crisis.”

“Who needs $1 million to retire? Everybody does,” Dooley said. “But it’s really not about a million bucks. What you have to establish first is your spending rate.”

If someone successfully saves $1 million at age 65, they’ll have $45,000 per year. “Ninety-five percent of the time, that money will last to age 95,” Dooley said.

That doesn’t include Social Security and pensions. And it doesn’t take into account inflation.

In 30 years, $45,000 will buy a fraction of what it does today.

“Inflation. That’s the key that people forget,” Dooley said. “Inflation is going to start eroding income and savings.”

Dooley said most people fall far short of saving $1 million for retirement.

“Because most people between 30 and 50, what they would have to save to get to $1 million is way too much for what they can handle.”

“For the generation of 30 to 50, they just haven’t saved enough money. They’re already way behind,” Dooley said.

“Nobody thinks financially more than 24 months ahead,” he said, noting that most people come in to see him for retirement planning two years before their retirement.

“I try to convince people that they need to do financial planning,” Dooley said. “They’re ignoring the problem.

“What I’m doing by planning is telling them what their lifestyle is going to be. It’s too late to solve it. It is what it is. You have X amount of dollars. You’re going to have to learn to live on this or you’re going to have to keep working.”

According to the Retirement Confidence Survey, 42 percent identifies job uncertainty as the most pressing financial issue facing most Americans.

While many workers think they’ll be able to work longer in their careers, Mathew Greenwald of Greenwald & Associates, which conducted and co-sponsored the survey, said that some are certain to be disappointed.

“Nearly half of current retirees surveyed by the [Retirement Confidence Survey] report they left the workforce earlier than they planned for reasons beyond their control, such as health or economic changes such as job loss,” Greenwald said.

Twenty-five percent of workers in the 2012 survey said the age at which they expect to retire has changed in the past year. In 1991, 11 percent of workers said they expected to retire after age 65. By 2012, that had grown to 37 percent.

And retirees report that they are significantly more reliant on Social Security as a major source of their retirement income.

“Some have said, ‘I’ve retired over 200 times,’ ” Dooley said. “With good retirement planning, you’re only going to do it once.”

How to retire with $1 million

According to financial planner Timothy Dooley of Prairie Grove, if you want to retire with $1 million, you’d better start early. Figuring a return of 6 percent with a mix of stocks, bonds and cash, Dooley said a 20-year-old would have to save $4,500 a year for 45 years to save $1 million by age 65. A 40-year-old would have to save $17,200 a year for 25 years, and a 50-year-old would have to put away $40,500 per year for 15 years.

See the full survey

Full results of the 2012 Retirement Confidence Survey are available online at www.ebri.org.