Financial Planning, Retirement

Do Not Let Overconfidence Hurt Your Retirement

10/19/16 8:00 AM

iStock_000017323851_Small-1.jpgYesterday we learned that confidence in the stock market is relatively high right now, and a new report from State Street Global Advisors (SSGA) suggests that Americans are also quite optimistic about retirement. Specifically, 52 percent of surveyed U.S. adults said that they are “extremely” or “very” confident that they will be able to meet their retirement goals, a sharp improvement from 21 percent in 2013. Other recent surveys have displayed similar gains in overall retirement sentiment but most financial experts still worry that many Americans are at risk of overestimating their level of retirement readiness. Such concerns are not too surprising since an alarming 69 percent of adults surveyed last month by GOBankingRates reported that they have less than $1,000 in total savings. Thirty-four percent even said that they currently have no money at all set aside.


There are also a handful of potential old-age financial setbacks that too many people fail to account for when estimating how much money they should save for retirement. For example, a new analysis by the Society of Actuaries found that roughly one in five (19 percent) surveyed retirees said that they had already experienced four or more financial shocks during retirement, with major home repairs and dental care being the most common unexpected expenses. Such monetary setbacks can be substantial, with many respondents saying that their asset levels were severely depleted by the shocks they encountered. In fact, 22 percent of the retirees who said they experienced a reduction said that it resulted in a loss of 50 percent or more in their total retirement assets. One survey respondent, for instance, reported that “We had maybe $60,000 or $70,000 in Fidelity, and we had maybe $10,000 in a savings account that was going to be fun money for us. We had to spend all that.” Only 28 percent of surveyed retirees said that they had not yet experienced any shocks.


Planning for the unknown is inherently difficult, so one of the best things a person can do is try and set aside as much money as possible each year prior to retirement. Consulting with a professional financial advisor can help make sure that those savings are put to use optimally, i.e. maximizing growth while managing risk. It is also a good idea to make use of every tax-advantaged savings vehicle at your disposal, such as a 401(k). A new study by Wells Fargo even found that the third of surveyed U.S. workers who have been consistently saving for retirement were much more likely to have had access to a 401(k) plan. Further, consistent savers in the sample had accumulated a median retirement nest egg of $150,000, significantly more than sporadic savers ($20,000). Consistent savers were also a lot less likely to expect that they will have to postpone retirement until at least age 70 due to insufficient savings.



Sources: State Street Global Advisors, EBRI, GOBankingRates, The Society of Actuaries, Wells Fargo

Post author: Charles Couch