I just finished wading through the Employee Benefit Research Institute (EBRI) 2011 Retirement Confidence Survey (RCS). My findings are problematic. The EBRI is a private, non-profit, nonpartisan public-policy market research firm.
The 2011 RCS is the EBRI’s 21st annual retirement survey. The survey attempts to measure the attitudes of working-age and retired Americans regarding retirement, their preparation for retirement, and their confidence in various aspects of retirement. It is based on an interview of more than 1,200 individuals over 25 years old. The survey’s margin of error is +/- 3 percentage points.
The RCS shows that Americans are neither confident in having enough money for retirement nor properly informed on the steps required to achieve a comfortable retirement. According to the survey, the percentage of workers not at all confident about having enough money for a comfortable retirement increased to a record high 27% in 2011.
Why aren’t Americans confident in their ability to secure a comfortable retirement? It would appear as though the majority of Americans aren’t saving enough. More than half of RCS respondents reported that the total value of their savings and investments, excluding their primary home and pension plans, is less than $25,000. More troubling still is the 29% of respondents who have less than $1,000 in savings. These folk are basically living paycheck-to-paycheck.
The problem here is one of preparation. Over half of survey respondents have never attempted to calculate the amount they need to have saved for a comfortable retirement. Instead of working through some basic arithmetic, 42% of respondents have simply guessed at the amount they need saved. Guessing doesn’t sound like a prudent strategy for such an important life matter. And those guessing are vastly underestimating their needs. Thirty-six percent of those guessing at their retirement needs believe they need to save less than $250,000. A $250,000 portfolio can sustainably generate about $10,000 per year. Can you live on $10,000 per year? Contrast the guessers with the more diligent crowd that has taken the time to calculate how much they’ll need to accumulate for a comfortable retirement. Twenty-five percent of respondents who have done a calculation estimate they’ll need at least $1,000,000 to retire.
If you haven’t yet calculated the amount you’ll need to secure a comfortable retirement, I would advise you to do so. In a future post I’ll provide a step-by-step guide to estimate the amount you’ll need to retire comfortably.
Jeremy Jones, CFA
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