Talk about a disaster trifecta.
The big three? Recent studies show that more Americans will be forced to retire earlier than they think. Worse, they have no idea how much they need to save to live comfortably in retirement. They also don’t have a firm grasp of how many years they’ll need to finance after they leave the workforce — putting them at risk of losing their money.
Let’s start with that involuntary retirement.
According to Edward Jones recently study, 40% of their clients were forced to retire. “It’s not a complete shock because life is full of surprises and it doesn’t stop at retirement,” Jennifer Schoonmaker-Dash, a financial advisor at Edward Jones in Lexington, N.C., told Yahoo Finance. Various reasons such as company downsizing or very frequent personal health issues.
A study by the Employee Benefit Research Institute (EBRI) and Greenwald Research earlier this year found a wide gap between when active workers expected to retire and when retirees actually said they did: Workers continued to report an expected median retirement age of 65, while retirees reported an expected median retirement age of 62. They say they retired in middle age.
Employees may say they expect to retire at age 70 or older. One in three workers expect to retire at 70 or older, or never at all, but only a slim fraction will hang around that long.
You don’t want to think about it
The looming prospect of being forced to retire sooner than expected is complicated by the fact that many people have not properly planned.
For many people, retirement savings is a guessing game, a survey The non-profit Transamerica Center for Retirement Research (TCRS) in partnership with the Transamerica Institute.
1 in 5 workers across generations estimate they need to save $2,000,000 or more, including baby boomers (24%), Gen X (22%), millennials (21%) and Generation Z (17%). But about half of the workers who gave the estimate said they guessed right.
They don’t even want to entertain the thought.
About 4 in 10 workers agree with the statement, “I prefer not to think about retirement investing or not until I’m close to retirement,” including 13 percent who strongly agree and 29 percent who somewhat agree. (Generation Z and Millennials are more likely to agree than Generation X and Baby Boomers.)
How long will I live?
To add to three troubling obstacles: Many Americans fail to understand how long they can live. A report from the TAA Institute and the Center for Global Financial Excellence at the George Washington University School of Business found that one-third of Americans knew the average life expectancy of retirees. And only 12% knew the correct answers to a basic question designed to measure longevity.
On average, a 65-year-old man lives to 84 and a 65-year-old woman to 87. Moreover, a 65-year-old has a 30% chance of living to at least 90 and 65. A woman of the year has a 40% chance of hitting this mark.
meet the ends
In other words, retirement can be a big problem for employees without a plan. According to an Edward Jones report, when preparing for retirement, clients struggle most with developing an income drawdown strategy (35%) and deciding when to claim Social Security benefits (35%).
One solution: Sorry, back to work. Almost all of the advisers interviewed by Jones said they had discussed, or wanted to discuss, their clients’ decision to return to work after retirement. Financial advisors say being mentally active (99%), having access to health insurance benefits (99%) and having a sense of purpose (97%) are the most important benefits of working in retirement.
The idea of continuing to work in some fashion – even after retirement – is not a far-fetched concept for most workers.
Fifty-five percent of workers plan to work after retirement, including 18 percent who plan to work full-time and 37 percent who plan to work part-time, according to a Transamerica study. Workers across generations plan to continue working in retirement, including 53% of Generation Z, 56% of Millennials, 54% of Generation X and 55% of Baby Boomers.
“It’s becoming more common to talk with my clients about what it’s like to work in retirement and what their goals are,” Schoonmaker-Dasch said. “It’s different for everyone at the peak of their career, but the right job opportunity can help provide financial stability and give retirees a sense of purpose.”
The biggest takeaway from these studies is My Perch: Saving for retirement isn’t something young workers can tread lightly. You may have to live after retirement and “retire” decades earlier than you think is often out of your control.
Saving even a small amount is within your control, especially when you’re young, contributing as much as you can to retirement plans offered by your employer and automatically adding to your pot after pay. Then steadily increase the percentage you contribute each year.
If saving for retirement is something you don’t want to think about, how about restructuring your life savings? Life savings, now it has a sweeter ring.
Kerry Hannon is a senior reporter and columnist at Yahoo Finance. She is a workplace futurist, career and retirement strategist and author of 14 books, includingControl at 50+: How to Succeed in the New World of Work and “Never be too old to be rich.” Follow her on Twitter. @kerryhannon.
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