Why Are Pre-Retirees More Worried About Retirement than those that are Retired? - by Scott Stolz, CFP, RICP (week 71)

 

A recent Gallup survey found that 82% of current retirees expect to have enough money to live comfortably in retirement.  In contrast, only 45% of those that have not yet retired have the same expectation.  Similarly, that same survey found that “only” 39% of current retirees worry about running out of money, while 69% of those not yet retired have that worry.

What I find interesting about this data is that if you look at the chart above, you will see that this gap has existed since Gallup started doing this survey almost 25 years ago.  And I’m quite sure that this discrepancy has been a reality well before then.  So why the difference?  Why are so many people so worried about their financial situation prior to retiring only to find out that they are just fine once they actually retire?

I think there are two primary reasons.  The first is Social Security.  I spoke at my first financial seminar for the public 4 decades ago.  At that seminar, I asked how many people expected to collect Social Security.  I noticed that almost every hand in the air belonged to people in the audience over the age of fifty.  Hardly anyone below that age raised their hand.  Yet all of those that did not raise their hand back then are collecting Social Security today.  This discrepancy is still true today.  The Gallup survey found that only 36% of non-retirees expect Social Security to be a major source of income during their retirement.  I expect that today’s non-retirees will also be pleasantly surprised at how much Social Security supports their lifestyle in retirement.  The reality is that too many current and future retirees will need Social Security.  Therefore, Congress will eventually do something to fix it.  And that fix, whatever it is, will reduce benefits only for those that can live without it – if at all.  According to the Social Security Administration, Social Security makes up at least one-half of the retirement income for 40% of those 65-years old and older.  For more than one in eight people in that age group, it makes up 90% of their retirement income.  Social Security is just too important for Congress to allow any significant cut in benefits.

The second reason is pensions.  Over one-third of all current retirees are receiving a pension.  When that one-third adds a pension to their Social Security benefits, it becomes much easier to be confident about your income in retirement.  However, the number of retirees getting a pension will continue to drop over time.  Today, pensions exist primarily for those working in state and local governments.  And eventually, many of those government entities are going to face the fact that they can’t afford pensions either.  But that’s a discussion for another day.  The bottom line is it’s important that today’s workforce take advantage of any retirement plan they can even if I’m right and they get more from Social Security than they expect.

The concern about not having enough money in retirement is also causing 21% of all non-retirees to say that they intend to work part-time in retirement.  Contrast that to the 3% of current retirees that actually work part-time.  I’m guessing that once that 21% hit retirement, they are going to find what I have found.  After working for over four decades, once you quit working you find that you really don’t even want to work part-time.  Therefore, I seriously doubt that the workforce is suddenly going to be filled by 7x the current number of retirees.

The bottom line is that the reality of retirement is often very different than what we assume it will be.  We typically retire sooner (by 3-4 years on average), work less, have more financial flexibility, and eventually settle into a more stable and predictable lifestyle.  It’s smart to have a plan and save as much as you can.  Perhaps that’s the real reason that the realities of retirement are typically less worrisome than the preparation.