When it comes to their retirement, America's 50-somethings seem to be in a state of denial.
Although the recent economic downturn has forced pre-retirees ages 50 to 59 to consider working years longer than they had hoped, their current rate of savings is unlikely to fund the retirement lifestyles they expect, according to fifth-annual Retirement Fitness Survey from Wells Fargo & Company.
On behalf of Wells Fargo, Richard Day Research conducted 2,108 online surveys with pre-retirees (ages 50 to 59) and young retirees (ages 55 to 70).
Those interviewed were relatively affluent, each having at least $100,000 in household investable assets, excluding real estate.
According to the survey, only 23% of pre-retirees are saving more for retirement than they were a year ago. Most -- 57% -- are saving the same amount, and 20% are now saving less.
Sixty-seven percent say their expectations for retirement have changed in the past year, and 56% now expect to work longer by an average of three additional years.
"It was surprising - given the level of market disruption - that '50-somethings' didn't change much of anything with regard to their retirement planning," says Lynne Ford, head of Wells Fargo Retail Retirement. "Only one in three has a retirement plan. We'd like to see a greater number of Americans increasing their savings and more planning in the 50-somethings."
Overall, the financial positions and savings habits of this group are insufficient to last for their expected 20-plus years of retirement:
* While pre-retirees surveyed expect to need $800,000 for retirement, they have saved only $300,000 (median amounts).
* Pre-retirees clearly haven't assessed how long their savings will last in retirement. They expect to live nearly 21 years in retirement, but plan on spending nearly 10% of their savings every year in retirement. The industry recommendation is to withdraw no more than 4% annually.
* People have been overly optimistic about their investment returns. When they started saving (typically in their 30s), both pre-retirees and retirees expected the value of their investments to grow by 8.7% each year, on average. In fact, the compound annual growth rate of the S&P 500 from 1958 through 2008 was 6.6%.
* Despite their inadequate savings, nearly two-thirds lack any formal plans for retirement savings or spending strategies. Only 35% of the pre-retirees have a written plan for retirement, and of this group, only 52% say they updated it in the past year during the market downturn.
* Less than half (40%) wish they had been more proactive about educating themselves about retirement preparation.
* Only 34% "wish they had cut back more on their previous lifestyle and saved more" for retirement.
For advisors, Ford points to several areas of concern.
The most alarming finding from the survey is that it highlights the bad assumptions that individuals are making around retirement plans, she observes.
"Assumptions that will really impact the outcome in a significantly negative way--this is certainly one area that financial advisors should hone in on and run with. There are lots of data here that would make a perfect prospecting call," Ford explains.
"For example, on average our respondents said they were planning for 21 years in retirement. That is simply not enough if you are a healthy 65-year-old," she says.
"Another area of serious concern is portfolio withdrawal rate. Our respondents indicated that on average they were planning to withdraw 9.6% per year from their nest egg. This is more than double the investment rule of thumb which would be 4%," adds Ford.
"Last, when asked how much they thought they needed in assets for retirement, the median response was $800k (which you might argue is not enough), but the scarier fact was that the median accumulated to date was $350k - a big gap," she concludes.
Further information about the survey's findings is available online.