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The Retirement Reality Gap

Retirement expectations often differ from what actually happens in retirement.

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Senior couple calculating their monthly finances at home.
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By Tom Sightings

The new post-Great Recession economy has taken its toll on retirees, as well as those of us looking forward to retirement in the near future. Unfortunately, there's something of a reality gap between what today's workers think about retirement and what actually happens in retirement. Here's a look at the perceptions and the realities.

Today, many people plan to delay retirement. According to a 2013 survey by the Employee Benefit Research Institute of 1,000 individuals age 25 and older, some 22 percent of workers said the age at which they expect to retire has increased. Respondents cited a poor economy and the inability to afford retirement as their main reasons for the delay. Almost 10 percent of workers said they'll never retire. At the same time, the number of people expecting to retire early, before age 65, is just about half of what it was 20 years ago.

The gap: People retire sooner than they expect. Almost half of retirees surveyed reported that they retired sooner than they had planned. Those who retired early cited a number of reasons. A few retired because they could afford it. But many more cited a layoff, health issue or disability.

Baby boomers feel younger than they really are. According to a 2012 AARP-sponsored poll of 1,852 registered voters, including 1,331 age 50 and older, health and longevity are not topics that often come up in conversation among baby boomers. Only about half of those nearing retirement said they had discussed the issues of poor health, disability and death with their spouse or doctor.
And according to a 2009 Pew Research Center survey of nearly 3,000 adults, boomers felt at least 10 years younger than their actual age. They peg "old age" at somewhere above 75.

The gap: The biggest reason for early retirement is an unexpected health issue. According to the EBRI survey, 55 percent of those who retired earlier than planned say they did so because of a health problem. An unforeseen illness can disrupt your retirement dreams and cause other complications. For example, if you think you'll work until age 75, you might not consider things like long-term health insurance. According to the U.S. Department of Health and Human Services, someone turning 65 today has almost a 70 percent chance of needing long-term care services.

Today's workers plan to work part time in retirement. Almost three quarters of people now holding a job said they expect to work after they retire to supplement their income, according to the EBRI survey. Over half admitted that they are counting on income from a part-time job to be a significant source of income in their later years.

The gap: Only about 25 percent of retirees report that they are actually working in retirement. The reality is that many retirees want to keep working part time for their old employer, but their old employer doesn't need their services. Or they want to find a consulting job, but discover that their experience is not relevant in the current marketplace. Many find that the majority of help-wanted opportunities are minimum-wage jobs in retail or hospitality, and they decide not to work after all. If you do want to work part time in retirement, the best time to find the job is before you retire.

Workers are aware that they are left largely to their own devices to save for retirement. Multiple surveys have shown that workers have lost faith in Social Security, know that defined-benefit retirement plans are on the wane and that they should take advantage of various retirement accounts such as 401(k) plans and individual retirement accounts. Major financial firms including Fidelity and Aon/Hewitt recommend saving up to 10 times your annual income, which along with Social Security should allow you to replace approximately 85 percent of your preretirement income.

The gap: People fall far short of their savings targets. According to a 2013 study by the National Institute on Retirement Security, 45 percent of working-age households do not own any retirement account assets. And two-thirds of older households ages 55 to 64 have retirement savings of less than one time their annual income, which is far below what they need to maintain their standard of living. A little over a third of retirees say a pension provides a significant amount of their income. Still, some 70 percent of Americans credit Social Security for their main source of income, according to the EBRI survey.

The solution. There is often a major difference between what people expect in retirement and what they actually get. As you go about planning your own retirement, pay attention to the gap -- the one that can be caused by a layoff, unexpected health issue or unfamiliar job market. And make plans to close that gap.

Tom Sightings is a former publishing executive who was eased into early retirement in his mid-50s. He lives in the New York area and blogs at Sightings at 60, where he covers health, finance, retirement and other concerns of baby boomers who realize that somehow they have grown up.


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43 Comments

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thejrd

I retired after 35+ years with the same company on Mar 28th this year. I started at $3.75 an hour and ended at just under $50000 a year. I was lucky enough to be in a company with a retirement plan and have a 401k. My monthly pension which I was able to take an option called level income,where I recieve projected Social Security payments and reduced pension benifit through the pension plan, for $1929.84 till age 62 then the pension drops to approx. $450 amonth with social Security making up the rest to maintain a $1929.84 monthly benefit for the rest of my life. I have lived in the same house for the last 34 years and property taxes and home owners insurance run under $100 a month for both combined. I have withdrawn a huge amount from my 401k to pay off all debt and leaves $80000 in my 401k. I have a son that is paying all my household expenses( gas, electric, water, cable, cell phones, internet). Only expenses I have are auto insurance, food and the property taxes and home owners insurance. My wife worked minimum wage jobs so there isn't any pension benefits for her except from my pension plan if I die before her. She will get Social Security at 62, she is 57 now. We will have over $900 a month spending money after all monthly bills are paid . I am going without health insurance for now due to the large amount I have taken from my 401k. I could get coverage under Cobra for myself and wife ,but that would cost $1180 a month. I always figured on retiring without health care anyway because old people don't need health care. I will die when the time comes without buying a doctor a new car or vacation home or the hospital a new wing to fill up with desperate and frightend people. ACA will penalize me but still cheaper than health care. In closing we will have $900 a month free spending money and $80000 in 401k. We expect to die in our late 70's as happens in our families.

April 16 2014 at 11:50 PM Report abuse +2 rate up rate down Reply
RMS

Get real! Work longer? Work part time after retiring? Try being out of work and being over age 50. You can't get hired. How can someone work longer or delay retirement if you cannot find work?Gone are the days when you worked for one company for 30 years or more and retired with a pension. You can't retire, or for that matter, survive on a part time minimum wage retail job.

April 16 2014 at 10:58 PM Report abuse +2 rate up rate down Reply
jhrooney

The author does not admit most of the retirees were looking to make a lot of money on the last house they owned and get away clean.
The only problem was Barney Frank and Chris Dodd cooked the books for years with Freddice Mac and Salle Mae, and the bubble burst and the folks didn't get the money they planned for. They will probably work for many more years.

April 16 2014 at 10:49 PM Report abuse +2 rate up rate down Reply
jojosdixoutcider

Perhaps tomorrow the Republicans will come out with their new healthcare plan.

April 16 2014 at 10:00 PM Report abuse +2 rate up rate down Reply
1 reply to jojosdixoutcider's comment
teapartyisdying.uall

The TPGOP's healthcare plan, JDA..........Just Die Already

April 16 2014 at 10:26 PM Report abuse +1 rate up rate down Reply
michael.robinson51

I'm getting ready for retirement in 10-15 years by crafting a careful savings plan. The key is to structure your life in a way that is both livable and below your means. If you analyze your spending, small changes or sacrifices can lead to big savings. The most recent waste I found was a life insurance policy that an "advisor" sold me about 4 years ago. I was paying a lot, I don't even want to admit how much. After some research I found that from a place like Life Ant or gnworth I can get the same policy for about $25 a month. Easy savings. Car insurance same thing I saved about $150 a year by switching. Even things like only eating lunch out once or twice a week really add up over a year. I increased the savings to my 401k to 12% with a 4% match from my company. If all keeps going I should be in a nice position.

April 16 2014 at 9:29 PM Report abuse rate up rate down Reply
Tom Harrell

That's one of the Biggest loads of BULL I've heard in a long time.
They're not talking about the average Joe that's worked and saved and Trusted for the last 60 years or more. ----------------
They're talking about THEMSELVES. They could afford to Save for retirement and build a Nest egg on their Wall Street and Hufpo and government Pensions, earning their 6 figure salaries (with Benefits).---------
They're LUCKY that Their Savings didn't get completely Wiped Out in the Great Recession and when it all settled back down they were too Old to Start OVER again.---------------
They're LUCKY not to be among the Boomers who were all reaching that Retirement Age EXACTLY when the "BUBBLE BURST' and everybody started Blaming THEM for the Countries Woa's because it was that (PROMISED) time for Social Security and Medicare.

April 16 2014 at 8:42 PM Report abuse -1 rate up rate down Reply
Tom

My spouse died unexpectedly last month - and now I'm 53 and trying to figure out what the hell happened and where to go from here. I have some pension money coming in every month (from both pensions), so the money isn't too much of an issue - but I can't help feeling angry that we were starting to retirement and now our retirement dreams are just gone.

April 16 2014 at 7:48 PM Report abuse +1 rate up rate down Reply
1 reply to Tom's comment
Tom Harrell

I'm Sorry but as they say "This Too shall pass".

April 16 2014 at 8:42 PM Report abuse +1 rate up rate down Reply
boston1936

Makes plans to close the gap? How exactly? We think we have so much control over things but the fact is the older you get the greater you become a target for layoffs or forced early retirement programs as companies seek cost savings. Age discrimination is out there. They'll know your age once you fill out the application. First you get offered an early retirement with the caveat that if you don't take it you may be let go.

Some of us may want to keep working until age 70 or more out of necessity but we don't know if we'll really be able to do so since there is no job security. Health is an issue always. Minimimum wage jobs with no benefits and having to stand on your feet all day once your older aren't going to help with your health issues even if they are part-time. They may only help mental health if you're livng alone and lonely! They won't make up for lost income from a better paying job. Also consider, if there are alot of baby boomers seeking similar employment then the competition only hurts you in getting a job if you need one.

What income can you really count on? The Stock Market can crash when you need the money. Housing values can drop. Pensions are under threat of being cut due to insolvency and the GOP keeps trying to pass laws to make it easier to do so. Social Security and Medicare are constantly singled out as being long-term insolvent and threatened by the likes of Paul Ryan. So what the heck can we really on as dependable income to retire?!!

April 16 2014 at 5:49 PM Report abuse +2 rate up rate down Reply
1 reply to boston1936's comment
mrsperlosi

Oh baloney. Such nonsense.

April 16 2014 at 6:53 PM Report abuse -9 rate up rate down Reply
1 reply to mrsperlosi's comment
Tom Harrell

Your time is coming fool.--------------Faster than you Think.

April 16 2014 at 8:47 PM Report abuse +4 rate up rate down
toosmart4u

If you are on social security and medicare, or soon will be, thank a democrat. If you want to end these 2 fine programs vote republican.

April 16 2014 at 4:25 PM Report abuse +2 rate up rate down Reply
2 replies to toosmart4u's comment
boston1936

Why would anyone want to vote Republican? You want to rip people off of the benefits they've earned. Social Security and Medicare have been deducted from our paychecks so we should get our money back with interest when we retire. Master of our own fate? Really?

If you Republicans keep trying to gut pensions, cut social security and medicare how can we be in control of anything? You keep trying to force us to make up for a gap that we're too old to make up for after 40. It's not about relying on social security and medicare only. But it is about those things helping us fill the income gap!

April 16 2014 at 5:54 PM Report abuse +5 rate up rate down Reply
3 replies to boston1936's comment
mrsperlosi

You know dear. Not only is what you posted ridculous as usual, every time you post that nonsense you prove over and over again that you are not smart at all doll. How sad for you that you wander through life in a state of confusion darling. But then again most of us liberals do dearest.

April 16 2014 at 6:48 PM Report abuse -4 rate up rate down Reply
3 replies to mrsperlosi's comment
Ed

"Master of my fate" had an excellent strategy, I like the one about the drinks the best. My wife and I stopped buying drinks in restaurants because it really runs up the tab. We both get water and ask for lemon. The sugar is on the table and now we have free lemonade. You would need to add sugar to sweeten it up.

April 16 2014 at 4:07 PM Report abuse rate up rate down Reply