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Do you think you have plenty of money in savings and investments? Are you confident you’ve got a handle on crucial aspects of retirement such as Social Security and Medicare? You might need to think again.
While more than two-thirds of retirees and near-retirees see themselves as financially ready for retirement, their advisers had a different take, viewing only 40% of their clients as ready, according to a survey from Allspring Global Investments.
“Most people get to retire once, unless they’re forced to go back to work for financial reasons. Yet advisers go through these scenarios so many times. There’s a disconnect between people’s confidence and advisers, who say ‘I’ve seen this movie before,’” said Nate Miles, Allspring’s head of retirement.
“It’s like that idea that everyone thinks they’re an above-average driver. But statistically, that’s not possible,” Miles said. “In reality, you don’t know what you don’t know. Part of me believes they just don’t know enough to be worried.”
The disparity was significantly sharper when it came to specific retirement topics. For example, when asked if they knew enough about Social Security to be prepared for retirement, 44% of near-retirees and over 50% of retirees said they did. Only 11% of advisers agreed with them.
Similarly, one-third of near-retirees and nearly half of retirees said they knew enough about Medicare planning. Only 8% of advisers thought their clients did.
“This report suggests investors are entering retirement less prepared than they think they are,” said Ron Cohen, Allspring’s head of defined contribution investment only distribution.
Advisers said this kind of disconnect is common because people fail to plan, and then they avoid talking about crucial financial issues as retirement nears.
“I feel like most people do not have a plan. They don’t even know what number they need to shoot for” in terms of saving, said James Sahagian, managing director of Ramapo Wealth Advisors at Steward Partners.
Near-retirees believed they needed $1.6 million to retire, while current retirees said they needed $1.1 million in savings for retirement, the Allspring survey found.
Read: What’s your retirement number? How to figure it out.
“Most people have never done a financial assessment that takes into account inflation [and] costs they could incur. Most people don’t have a financial plan. This does create quite a disconnect between perception and reality,” Sahagian said.
Inflation, investment performance and increased taxes were top concerns for advisers and investors, the Allspring survey found.
“There’s a saying that most people spend more time planning their summer vacation than their retirement. If you don’t have a financial plan, you may just throw a number out there that sounds good. People think they need $1 million, but that could be woefully insufficient. You don’t know unless you make a plan,” Sahagian said.
“It’s an uncomfortable conversation for a lot of people to have. They would rather avoid discussing it,” he said. “But having that candid conversation could save you a lot of heartache down the road.”
People may also need to retire earlier than planned, when something like a layoff, health problems or family issues force them out of the workplace. The average retirement age among survey respondents was 62, with 37% of retired respondents saying they had retired sooner than expected and 6% saying they had retired later than expected, according the Allspring survey.
One in eight near-retirees surveyed were actually “unretirees” who went back to work after they first retired, Allspring said. Compared with other near-retirees, these “unretirees” had lower household income and lower household investible assets, and they expected to need lower income in retirement, the survey found.
Read: MarketWatch’s View From Unretirement column
People approaching retirement also need to carefully consider when they will claim Social Security. The median household stands to gain $182,000 in lifetime discretionary income by claiming Social Security at the right time, according to Allspring, which cited a 2022 paper from the National Bureau of Economic Research.
“You need to be based in reality and swallow the bitter pill and take time out 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’re going have to go through the stress of coming up with a plan. You’re better off doing it far ahead of time and keep tweaking it. Take the emotions out of it.”
He added: “If you don’t have a budget or a plan, that’s a vulnerability. At least have something — an excel spreadsheet or a handwritten budget. It all gets you to the same place. Just start with a budget. It’s never too late.”
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