America’s Retirement Confidence Problem

Americans have a problem with retirement confidence. The problem is that they’re too confident about their retirement finances.

More retired Americans than ever are confident they will be able to live comfortably in retirement, but many of them could be fooling themselves.

The percentage of retirees who are confident they’ll be able to live comfortably throughout retirement rose significantly from 2018 to 2019 , according to the annual Retirement Confidence Survey from the Employee Benefits Retirement Institute (EBRI). The percentage rose to 82% from 75% in one year and matches highs recorded in 2005 and 2017.

Further, 23% said they are “very confident” they’ll be able to live comfortably, compared to 17% last year. The current level is back to the average recorded in the late 1990s and early 2000s before the financial crisis.

But people aren’t always objective and well-informed when self-reporting in such surveys. For example, 93% of people say their driving skills are above average according to a 2011 survey that is consistent with other surveys.

That’s why I believe the EBRI survey is at odds with other data, including a survey from Fidelity released the same week.

The Fidelity survey found that a written retirement plan isn’t a priority for most Americans, especially baby boomers. About 75% of boomers don’t have a written retirement plan. That’s better than for the generations following the boomers. More than 80% of them don’t have a plan. Overall, only 18% of Americans have a written retirement plan, according to the survey.

People offered the expected reasons for not having retirement plans. The most common (23%) was they hadn’t thought about having to prepare a plan. About 22% said they didn’t know where to begin, and 20% said they were too far behind to make a difference.

It’s hard to understand how people can be confident about their retirement security, as reported in the EBRI survey, when so few of them have written retirement plans, as reported in the Fidelity survey. It could be that many of the people in the EBRI survey are fooling themselves or don’t really understand their financial positions.

There are several reasons why people should develop written retirement plans and review them every year or so during retirement.

A retirement plan gives you a good view of your finances. It forces you make key decisions and to make them while taking a comprehensive look at your finances.

A plan also gives you confidence throughout retirement. You know that you considered the important issues and made the numbers work.

Over the years, surveys of retirees show that those who entered retirement having developed some sort of retirement plan were more satisfied than those who didn’t. That’s likely because those with plans entered retirement with realistic expectations and confidence about their futures.

You don’t need a plan hundreds of pages long like those you’ll receive from some financial planners.

But to have a successful, low-stress retirement you need an estimate of your annual spending. You need to know where your cash will come from and how much it is likely to be each year. You need an estimate of how much money you safely can spend each year without risking running out of money. You also need to map out key decisions such as what type of Medicare plan you’ll have and how you’ll pay for any long-term care you might need.

When you address these and other issues early in retirement (or, better yet, before retirement) and review them regularly, you’ll be more confident and secure during your retirement years. Unlike some of those in the EBRI survey, your confidence will be realistic.

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