A time to save

Fewer Americans confident they'll have enough money for retirement

March 25, 2011|By Gail MarksJarvis

Are you worried that you won't ever be able to retire, or have enough money to put food on the table and enjoy life if you do?

If so, you might be overly hard on yourself — penny-pinching when it's not necessary and perhaps missing out on enjoying life today. On the other hand, if you aren't worried at all, or haven't figured out whether you are saving enough for your future, you could be heading toward a miserable retirement, complete with the eventual realization that banks don't give loans to 68-year-olds to buy food, fill gasoline tanks or pay electric bills.

Studies by diverse think tanks show that most Americans retire without ever calculating whether they will have enough money for their future. They eyeball their savings, and when they see a sum that looks large compared to their usual pay, they assume it's enough and retire. Too often they find out later that taxes, inflation and unexpected living expenses are putting them in a precarious position.

Women are more at risk of far outliving their savings because they live longer than men, and on average they struggle more to calculate what they will need and what they can afford to spend, according to research by Annamaria Lusardi for the Pension Research Council at the University of Pennsylvania's Wharton School. Hispanics, African-Americans and low-income people generally are also at greater risk, but Lusardi has found that people of any income, gender, race or education are poor at figuring out how much they will need to retire. Only 42 percent of people try to figure it out.

And the highest income group tends to be the most overly confident — underestimating what their lifestyle will cost them and how their savings will hold up possibly for 30 years of retirement, according to research by Jason Seligman, a public affairs assistant professor at Ohio State University.

Reality check

Having gone through the financial punishment of the last three years, many people would rather not face reality. A recent study by Fidelity Investments found that 30 percent of Americans nearing retirement don't want to know how they stand. There is a sense of gloom — a result of job losses and plunging 401(k)s and home values following a recession so harsh that Americans feel vulnerable. That's even if they have jobs and are saving money.

Although research has shown that people tend to overestimate how they will fare in retirement, only 13 percent of Americans are now very confident that they will have enough savings to carry them through their nonworking years, according to the Employee Benefit Research Institute (EBRI). It's the lowest confidence level the institute has measured.

Still, too many people might be overly disheartened. According to the Center For Retirement Research at Boston College, 53 percent of Americans are not likely to have enough money to keep living the lifestyle they are accustomed to in retirement. But that means about half of Americans don't have to fret, and even many of those who are behind could catch up if they calculated what they would need and stashed more savings away. Try the "ballpark estimate" calculator at choosetosave.org.

The pension question

Of course, forces outside of people's control have threatened the golden years. Pension plans, which guaranteed retirees they would get spending money after leaving jobs, are becoming extinct. For government workers, the majority still have pensions, but some cities, states, counties and school districts are almost broke and are being forced to pinch pennies themselves. They are eyeing cuts in pensions, and workers who ignore this and don't save more on their own may regret it later.

Further, counting on Social Security and Medicare to remain unscathed is equally naive because entitlements are the largest part of the federal government's troubled budget. Currently, the average person on Social Security gets just $1,178 a month ($14,136 a year), which should be motivation enough for workers to try to save more to cover actual living expenses.

Unfortunately, the nation's financial troubles couldn't have hit at a worse time for people near retirement. About 16 percent of Americans struggle to make ends meet while unemployed or underemployed. And unemployment is hitting people over 50 years old hard. Job cuts are lower for older workers than younger workers, but when an older person loses a job, getting a new one is more difficult. Most people over age 50 who have lost jobs have been out of work for over six months.

This, of course, adds pressure to Americans who undersaved for their future but thought they would work longer to make up for inadequate saving. Complicating the situation is a decline in housing values, meaning it will be tougher for retirees to tap home equity.