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American’s Retirement Confidence


This is another great article by Robert Powell of Market Watch. I feel that Robert is one of the leading voices on retirement. Robert was kind enough to quote me in the artice in the section entitled Courses of Action.

Sound of blues music
Survey finds all-time low in Americans’ retirement confidence
By Robert Powell, MarketWatch
Last update: 12:01 a.m. EDT April 14, 2009
BOSTON (MarketWatch) — Fewer and fewer Americans these days are singing “I Have Confidence,” Julie Andrews’ classic song from the “Sound of Music.” No it’s not because the song, released some 44 years ago, has fallen out of fashion. Rather, it has more to do with the economy, inflation and the cost of living.

Workers and retirees have simply lost confidence in their ability to either fund a comfortable retirement or enjoy a financially secure retirement, according to the Employee Benefit Research Institute’s 19th annual retirement confidence survey released Tuesday.

Simple ways for retirees to stretch their deflated investments.Just 13% of workers say they are “very confident” about having enough money for retirement, according to the survey. That’s the lowest percent of workers feeling that way since EBRI first began asking the question in 1993, and way below the 27% figure hit in 2007 — just two years ago.

What’s worse, some 44% of workers are either “not at all” or “not too” confident about having a secure retirement. Meanwhile, just 20% of retirees are very confident about having a financially secure retirement, about half the percent of retirees who were very confident in 2007.

Responding to falling confidence
Besides the economy and inflation, workers became less confident because the value of their retirement assets fell, their debt rose, and their jobs were lost or replaced with lower paying jobs. But just because workers and retirees aren’t confident about retirement doesn’t mean they are taking things lying down. They are reducing their expenses, changing the way they invest their money, working more hours or a second job, saving more money, and seeking advice from financial professionals.

Workers, because of the economic downturn, also plan to postpone their retirement in hopes of improving their odds of having enough money salted away for their golden years. The midpoint at which workers plan to call it quits is now 65, with one in five saying they plan to work into their 70s. Unfortunately, plans don’t always sync with reality. The midpoint at which most Americans retire is 62 and nearly half say they retire sooner than planned.

Not surprisingly, more and more Americans plan to supplement their income in retirement by working for pay. (If you work in retirement, it is still called retirement?) Learn more about the 2009 RCS at this Web site.

Courses of action
So what do experts have to say about the sorry state of confidence in America?
Don’t panic, says Roger Wohlner of Asset Strategy Consultants. “A starting point for most people is to assess their current financial situation first rather than jump all the way to running retirement scenarios. ”

First, assess your current employment. If you have a job, how secure do you feel? How marketable are you if you lose the job? If you are unemployed or underemployed, how long can you support yourself on current resources? Will you need to dip into retirement savings?
Next, examine your expenses. What can you do to reduce expenses? “I know our family has gone through things like cable, cell phone, insurance deductibles, and the like,” said Wohlner.
And if you haven’t done so already, now’s the time to assess your portfolio. “Many people will look at their reduced portfolio and realize that retirement is farther off and will require some different strategies,” said Wohlner. “I fear that many folks will panic. If you have never worked with a financial adviser this might be a good time to at least have an unbiased third-party professional help them look at things.”

Ruth Helman, research director at Mathew Greenwald & Associates, a Washington-based public opinion and market research company, said in an email that there’s a link between having a financial adviser and having confidence. But it seems to matter more for those at the lowest income levels.

Calculate your nest egg
In the end, confidence — it might be fair to say — is driven by the size of one’s nest egg. “Confidence rises as financial assets increase, even at the smallest levels of savings,” said Helman.

Given that, Americans really need to get a handle on how much they need to save for retirement. And, sadly, many don’t have a clue. About half of Americans (44%) have calculated the number but an equal proportion have simply guessed at it, according to the EBRI survey.
And so the big question is this: How much is enough? One rule of thumb suggests that you might need 20 to 30 times your final year’s salary set aside. But it would appear that very few Americans think that’s how much they will need.

Consider: some seven in 10 workers who earn less than $35,000 think they will need less than $499,000 in savings to fund their retirement. Using the 20 times salary rule of thumb, it’s likely those in the income range will need about $700,000 set aside. Unfortunately, their nest egg could be shy by at least $200,000 of what’s needed.

Consider also those earning $35,000 to $74,900. Let’s say that they’ll need $1.1 million set aside for retirement. According to the EBRI survey, just one in 10 workers think they’ll need that much. The other 90% think they’ll need less than $1 million.

By the way, just one in 10 of all workers have set aside — not including the value of their house or defined-benefit plans — $250,000 or more. Americans, it would seem, have no reason to be singing “I Have Confidence” just yet.

Robert Powell has been a journalist covering personal finance issues for more than 20 years, writing and editing for publications such as The Wall Street Journal, the Financial Times, and Mutual Fund Market News.

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