Fact Vs. Feeling: Retirement Confidence Is At An All-Time High. Should It Be?

A close colleague of mine, financial author Tim Noonan, likes to say, “Financial security is a fact, not a feeling.” Based on a recent study about financial security in retirement, Tim’s saying is truer than ever.

According to the 2019 Employee Benefit Research Institute’s annual report, 67% of workers are optimistic about their ability to live comfortably in retirement. According to Craig Copeland, a senior research associate at EBRI, that’s close to an all-time high.

This optimistic trend is no surprise, given our current bull-market run. But is it good news that workers feel so confident? Or is it proof that Nate Silver is right—that the gap between what we actually know—how prepared we really are—and what we think we know—how prepared we think we are—is widening?

Let’s crunch some numbers. And in the midst of our concerns, let’s offer some positive solutions that advisors can bring to the situation.

Retirement: Perception vs. reality

Source: EBRI/Greenwald Retirement Confidence Survey ©2019

According to the EBRI study, the top quartile of savers—23%—said they’ve saved $250,000 or more. As an advisor who knows how expensive retirement really is, does this sound like good news? Even if it does, consider this: The bottom 40% of the workers reported that the total value of their savings, excluding home equity, is below $25,000.

Other findings paint a similarly troubling picture. According to a 2019 Transamerica study, the median Generation X worker—born between 1965 and 1980—has saved a total of $66,000 in all household retirement accounts.

The EBRI also points toward a concerning knowledge gap: While two in three workers are confident they are doing a good job saving for retirement and know how much they will need to have saved to live comfortably, only 42% have actually tried to calculate how much money they will need.

One of the likely reasons for this overconfidence is that many future retirees plan on supplementing their retirement income with a paycheck. The EBRI study says that eight in 10 workers think they will work for pay in retirement. But, based on retiree experiences, only 28% actually do. Workers are also three times as likely to say they expect working for pay to be a source of income in retirement, compared with just one in four retirees who receive income from this.

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