Data and Research November 10, 2015

Underestimating Creates Need to Change Plans for Retirement

Establishing realistic expectations about life expectancy and the amount of money needed is key to a successful plan for retirement.
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More than half of CPA financial planner clients who are planning for retirement underestimate either their own life expectancy (52%) or their joint life expectancy as a couple (57%), according to the American Institute of Certified Public Accountants (AICPA) Personal Financial Planning (PFP) Trends Survey.

In addition, CPA financial planners said 54% of their clients underestimated the total funds needed to retire, with 57% lowballing their potential expenses in retirement. More than three-fourths (76%) of planners said their client’s general over-spending contributed to changing their plan for retirement, with 29% naming it their number one reason.

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Health care costs, including medical expenses and medical insurance, was the second most cited factor (72%), with 24% saying it was the number one reason clients had to change their plan for retirement. The other leading responses were poor initial estimates of retirement income or spending (68%), giving financial assistance to family members (52%), and additional travel (49%).

The survey asked CPA financial planners to rate their clients’ confidence during the recent market fluctuation on a scale of 1 to 5, (with 1 being the most fearful, 3 being neutral and 5 being the most confident). Established clients of CPA financial planners (3.6) were the most confident, followed closely by clients under 40 (3.5), and clients educated about markets (3.4). Conversely, those most fearful during the market turmoil were those who had newly retired (2.3) and clients approaching retirement age (2.4).

The survey included responses from 398 CPA financial planners, and was conducted from September 2 to 22.

Data and Research November 10, 2015

Americans Misjudge Savings Needed for Retirement

About two-thirds surveyed believe they will need less than $1 million in today’s dollars in order to retire, or aren’t sure how much they will need.
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Americans have some wrong ideas about how much they need to save for retirement, according to a survey conducted by Morning Consult and released by the Financial Services Roundtable (FSR).

About one-third of respondents said they think they should be saving less than 10% for retirement, or aren’t sure how much of their paychecks should be devoted to retirement savings.  About two-thirds surveyed believe they will need less than $1 million in today’s dollars in order to retire, or aren’t sure how much they will need. Only one-third believe they will need $1 million or more to support themselves in retirement.

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FSR notes that experts recommend workers aim to save at least 10% of their income toward retirement, and most Americans may need much more than $1 million in retirement as lifespans—and time spent in retirement—lasts longer.

However, the survey found Americans get a better understanding of their retirement savings needs as they age. Fifty-six percent of 18- to 29-year-olds think they should save more than 10% for retirement, 69% of those 45 to 64 know they should save more than 10%, and 79% of those older than 65 know they should save more than 10% for retirement. 

NEXT: Americans value workplace retirement benefits

The FSR poll shows workers highly value retirement benefits in the workplace, rating them as one of the two most important benefits employers can offer, along with health care, at 94% and 95%, respectively.

When it comes to helping employees save for retirement, 63% of workers think employers should match between 5% and 10% of an employee’s pay. Only 5% of workers said they would likely opt-out if they were automatically enrolled in an employer retirement plan. FSR says this highlights the significant influence employers can wield over their employees’ opportunities to secure their financial future.

The poll surveyed more than 2,000 registered voters nationwide, 87% of whom said schools should teach students more about how to save and spend money wisely.

Nearly 68% said 2016 presidential candidates have not been talking enough about ensuring Americans have a secure retirement.

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