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December 10, 2010
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Middle-class Americans need more help than they realize in planning for retirement, according to the results of a survey from Wells Fargo & Co.

The study, which surveyed nearly 1,800 households with annual income of between $25,000 and $100,000, found that three-quarters of respondents are expecting to work during retirement, and two-thirds of respondents admitted to having no retirement plan in place.

As an illustration of the gap in understanding the realities of retirement, the average respondent has $31,000 in current retirement savings and estimated that he or she will need $1.5 million in order to finance their retirement.

Even with their current average retirement nest eggs so woefully underfunded, respondents generally feel that they will be able to finance at least 10 years of an anticipated 20-year retirement.

“The gap in reality shows that people are clearly not adding things up well,” said Laurie Nordquist, director of Wells Fargo institutional retirement and trust.

The point of the survey, which was conducted between Sept. 9 and Oct. 7, was to determine where middle-class Americans are in terms of retirement planning.

One of the major findings was the “new normal” of working during retirement, according to Joe Ready, director or Wells Fargo’s Institutional Retirement and Trust unit.

In studying the research across various age groups, Ready said people in their 20s are most confident of a comfortable retirement and also most realistic about having to fund their own retirement.

People in their 40s are considered to be the “most stressed” about retirement, with 60 percent expecting to work beyond the traditional retirement age.

Survey respondents in their 50s are “feeling pretty good and are very confident about retirement,” Ready said.

The biggest factor in the level of retirement-funding anxiety, Ready explained, is the availability of pension and Social Security income.

Of those surveyed, 59 percent of people in their 60s have pension income, which compares with 55 percent of people in their 50s and just 36 percent of people in their 40s.

But based on the survey findings, complacency might be a big mistake.

For people in their 50s, the median retirement savings of respondents is $29,000.
Stretched out over a 20-year retirement and assuming a 5 percent annual rate of return, that $29,000 would amount to about $190 a month.

Yet, according to the survey, 56 percent of 50-somethings said they are “confident or very confident” they will be able to fund their desired lifestyle throughout retirement.

“Too many Americans have their heads in the sand in the face of obvious savings deficits,” Nordquist said. “People are not even close to where they need to be in total savings.”

Another obvious example of the gap in understanding is the fact that 47 percent of respondents listed health care costs as being a major drag on retirement income.

Respondents expect post-retirement health care costs to total more than $30,000, which would consume everything they saved for retirement.

However, Nordquist added, even if all the numbers don’t quite add up, Americans appear to be at least embracing the idea that funding retirement is a personal responsibility.

The survey found that 71 percent of respondents are now working to reduce debt, but only 6 percent are saving more, and two-thirds of respondents have not changed their savings habits. 

Filed by Jeff Benjamin of InvestmentNews, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

 

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