With the start of a new year and many Americans determined to do a better job in 2021 of preparing for their financial future, a key question to ask is how much money will need to be saved in order to fund retirement. This is especially true considering that an alarming 61 percent of adults surveyed by Bankrate said that they have no idea what needs to be set aside to ensure old-age financial security, and many of those able to provide an estimate were still too conservative with their savings targets (see below). Such responses highlight the need for better planning, something which has repeatedly been shown to help achieve both near- and long-term financial well-being. For example, an earlier poll conducted by Lincoln Financial Group found that among surveyed Americans who believe they are currently on the right track to achieve financial wellness, nearly all (98 percent) said that they have a “forward-looking view and are planning toward that vision,” and 71 percent reported that they “have created a financial plan that they are following.”
Similarly, a TIAA study found that three out of every four surveyed retirees who started their old-age financial planning before their 30th birthday reported that they are “very satisfied” with the retirement lifestyle they have been able to achieve. Far fewer respondents who waited until after the age of 50 to start their old-age financial preparations were able to report being equally content with their current retirement lifestyle. Surveyed seniors who started early with their old-age financial planning were also much more likely to say that they retired sooner than anticipated, especially among those who were able to stop working before age 60 (see below). That should be an important lesson for the 92 percent of adults in the Lincoln Financial Group poll who said that they “do not want to have to work in retirement.” Consulting with a financial professional also seems highly beneficial because more than half (53 percent) of surveyed retirees who utilized an advisor said they are satisfied with their level of pre-retirement planning, compared to only 32 percent of those who had not worked with a professional. It is also important to note that financial plans appear to work best when written down.
Indeed, 43 percent of investors surveyed by Wells Fargo and Gallup who said they have a written plan for retirement reported being “highly confident” that they will have enough money to maintain their desired lifestyle in old age, compared to just 23 percent for investors without a written plan. Even when adjusted for income and asset levels, retirement confidence was still markedly higher for investors with a written plan. A study by Charles Schwab similarly found that people with a written financial plan were roughly twice as likely as “non-planners” to establish an emergency fund, have a life insurance policy, carry no credit card debt, and pay bills on time. Individuals with a written plan were also a lot less likely than non-planners to say they are currently living paycheck to paycheck. Further, smart investing behavior appears to be correlated with having a written financial plan because planners had a much higher likelihood than non-planners of considering risk tolerance when investing, having a diversified portfolio, periodically rebalancing their portfolio, and being aware of fees and other investment costs.
Sources: Bankrate, LFG, TIAA, Wells Fargo, Gallup, Charles Schwab