For about 44 percent of American workers, outliving their investments and savings is a top retirement concern, according to a survey released earlier this week.
The survey, conducted by the California-based Transamerica Center for Retirement Studies, finds that just 21 percent of people plan to stop working entirely when they retire. That could signal a major change in the way retirement is perceived and also an overall fear among some that they do not have enough money to stop working, financial experts say.
“I think that this country is woefully underprepared for this challenge,” said Jonathan Murray, managing director of wealth management at UBS Financial Services in Baltimore.
He wrote a book, “Two for the Money,” with his twin brother, David Murray, which focuses on helping baby boomers plan for retirement and not outlive their savings.
Murray cited a recent Fidelity retirement survey that found two-thirds of respondents did not have a retirement plan or budget.
“Whether you are a baby boomer or just entering the workforce, it’s critical to own your retirement planning,” said Sean Flynn, PNC Wealth Management senior vice president and investment director.
PNC Financial Services Group Inc. released a survey in April of more than 1,000 adults with investable assets of at least $50,000. The survey revealed that members of Generation X (ages 35 to 49) are more ready to take on the responsibility for retirement than boomers.
Many of those surveyed know than their 401k or comparable plans will not be enough to get them over their retirement goal. On average, respondents invest 11 percent in their employers’ retirement plan and another 9 percent on average specifically for retirement outside of these plans.
Younger investors worry more that they will have enough to live on for the rest of their lives. About three-fourths of Generation X respondents agreed with the statement, “I worry that my savings may not hold out for as long as I live” – compared with 55 percent of boomers.
And Generation X respondents believe on average they will need about $1.5 million to retire comfortably, while those closer to retirement believe they will need a bit less.
“There is no magic number,” said Flynn, who is a chartered financial analyst and a certified financial planner. “It really depends on lifestyle and spending habits for every individual.”
Laurie Kramer, senior vice president of Sandy Spring Wealth Management, says the keys to ensuring you do not outlive your retirement savings are saving, managing expenses and evaluating long-term care and health care needs in retirement.
She suggests taking advantage of employer retirement plans, particularly if the company offers a matching contribution. For more highly compensated individuals, she suggests taking advantage of deferred compensation plans.
Kramer suggests not leaving any of this “free money” on the table.
She also cautions investors to consider their long-term care and health care needs, which can be extremely costly and cause retirement planning to “go off the rails.”
“Not having the proper plan and having a certain amount of money set aside for those types of events can certainly derail the best of retirement plans,” she said.
Murray said the basic rule of financial planning is to draw approximately 4 percent from your “nest egg” for living expenses. If you have $1 million today, he said, that means you’ll need $40,000 a year.
“That’s eye-opening to most Americans,” he said.
Flynn suggests that investors not fear risk.
“With longer life spans and projected health care costs, take on more risks,” he said.
Portfolios that include 40 percent equity and 60 percent fixed income have had a positive total return in every five-year time period since 1950, he said.
“When you consider that retirement could last 30 to 35 years, you can see individuals are investing even more aggressively,” he said.