According to a CareerBuilder survey, approximately one-quarter (24%) do not know how much they will need to save for retirement. Women are much more likely to be unsure of how much to save than men—31% vs. 17%, respectively. The survey was conducted online within the U.S. by The Harris Poll on behalf of CareerBuilder among 809 employees ages 18 and older (employed full-time, not self-employed, non-government) between November 28 and December 20, 2017.
We are shocked to hear that only 24% are confused by how much they will need. We think that this is a very difficult math problem to solve for most of our workers, and we would fully expect a much higher percentage who lack the financial literacy/acumen to actually determine how much they will need in order to enjoy a dignified retirement.
When asked how much money they think they’ll need to save in order to retire, workers said:
- Less than $500,000: 20%;
- $500,000 to less than $1 million: 31%;
- $1 million to less than $2 million: 14%;
- $2 million to less than $3 million: 5%; and
- $3 million or more: 7%.
Presumably, those not providing an “answer” are the workers who were the ones with no clue. However, based on the results above, I’d say that most don’t know what they actually need and are just guessing. How many of them have actually gone through the exercise of determining what percentage of income they need to replace, estimated their life expectancy and that of their spouse/significant other, determined when to begin to take Social Security, estimated medical expenses later in their life, contemplated the impact of inflation on their current savings and future spending needs, etc. Probably few!
Asking untrained individuals to factor in all of the above (and more) is why we don’t like defined contribution plans versus defined benefit pensions, especially when it comes to dispersing one’s retirement savings. We recently produced a post that estimated that Seniors spend on average $46,000 / year in retirement. Furthermore, in another post, we highlighted the fact that one could expect to pay roughly $275,000 in out-of-pocket healthcare expenses during their Senior years (Federal Reserve).
Those surveyed may not know what they need to live on in retirement, but 4 in 10 workers know enough to believe that won’t be able to retire until age 70 or older. In addition, more than half (53%) of workers ages 60 and older say they are postponing retirement at this time.
When asked if they are currently contributing to retirement accounts, roughly one in four workers ages 55 and older (23%) said they do not participate in a 401(k), IRA, or another type of retirement plan, such as a DB plan. Among younger adults ages 18 to 34, 40% said they do not participate in a 401(k), IRA or another retirement plan. UGH!