Do you think you have a lot of money in savings and investments? Are you confident you’re managing crucial aspects of retirement like Social Security and Medicare? You may need to think again.
While more than two-thirds of retirees and near-retirees consider themselves financially ready for retirement, their advisors took a different view, deeming only 40% of their clients ready, according to a survey by Allspring Global Investments.
“Most people retire once, unless they are forced to return to work for financial reasons. Yet consultants face these scenarios so many times. There’s a disconnect between people’s trust and advisors, who say, ‘I’ve seen this movie before,'” said Nate Miles, Allspring’s retirement manager.
“It’s like the idea that everyone thinks they’re an above-average driver. But statistically that’s not possible,” Miles said. “You really don’t know what you don’t know. Part of me believes they just don’t know enough to be worried.”
The disparity was decidedly more marked when it came to specific pension issues. For example, when asked if they knew enough about Social Security to be prepared for retirement, 44 percent of near-retirees and more than 50 percent of retirees said yes. Only 11% of consultants agree with them.
Likewise, one-third of near-retirees and nearly half of retirees said they knew quite a bit about Medicare planning. Only 8% of advisors believe their clients do this.
“This report suggests that investors are going into retirement less prepared than they think they are,” said Ron Cohen, Allspring’s head of defined-contribution investment-only distribution.
Advisors say this type of disconnect is common because people fail to plan and therefore avoid talking about crucial financial matters as retirement approaches.
“I feel like most people don’t have a plan. They don’t even know what figure to aim for” in terms of savings, said James Sahagian, managing director of Ramapo Wealth Advisors at Steward Partners.
Near-retirees believe they need $1.6 million to retire, while current retirees said they need $1.1 million in retirement savings, the Allspring survey found.
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“Most people have never done a financial assessment that takes inflation into account [and] costs they might incur. Most people don’t have a financial plan. This creates a certain disconnect between perception and reality,” Sahagian said.
According to the Allspring survey, inflation, investment performance and rising taxes are the top concerns of advisors and investors.
“It is said that most people spend more time planning summer vacations than planning retirement. If you don’t have a financial plan, you might just throw out a number that sounds good. People think they need $1 million, but that may be woefully insufficient. You don’t know unless you make a plan,” Sahagian said.
“It’s an uncomfortable conversation to have for a lot of people. They prefer to avoid discussing it,” she said. “But having that candid conversation could save you a lot of heartache down the road.”
People may also need to retire earlier than expected, when something like a layoff, health problems, or family issues force them to leave their jobs. According to the Allspring survey, the average retirement age among those surveyed was 62, with 37 percent of retired respondents saying they retired earlier than expected and 6 percent saying they retired earlier. later than expected.
One in eight near-retirees surveyed were actually “non-retirees” returning to work after retiring, Allspring said. Compared to other near-retirees, these “non-retirees” had lower household income and less investable household assets, and expected to need less income in retirement, the survey found.
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People approaching retirement should also carefully consider when they will apply for Social Security. According to Allspring, which cites a 2022 paper from the National Bureau of Economic Research, the average family will earn $182,000 in discretionary income over a lifetime by claiming Social Security at the right time.
“You need to ground yourself in reality, swallow the bitter pill, take time off and do the hard work,” said Steven Conners, founder and president of Conners Wealth Management. “Trying to avoid it means that sooner or later you will have to deal with the stress of making a plan. You’d better do this well in advance and keep tweaking it. Take the emotions out of this.
He added: “If you don’t have a budget or a plan, that’s a vulnerability. At least get something: an Excel spreadsheet or a handwritten budget. It all takes you to the same place. Just start with a budget. It’s never too late.”