Only about three in 10 workers (28 percent) expect to have enough money to retire comfortably.

Conversely, nearly seven out of 10 Americans have set low expectations about their retirement prospects. The breakdown:

  • One-third (33 percent) say they’ll have just enough to get by.
  • Two out of 10 (17 percent) say they will not have enough money to retire without worrying.
  • Nineteen percent say they are afraid they’ll never be able to retire.

Bankrate commissioned GfK Roper to conduct a random survey of Americans’ expectations about retirement as part of our Financial Literacy series.

Counterintuitive actions

Here’s a surprise: One out of six Americans have increased their retirement savings as a result of the slumping economy.

Not so shocking was the discovery that the faltering economy has pushed about 15 percent of people in IRAs and workplace retirement plans into lowering their contributions. Meanwhile, three out of four workers (73 percent) kept contributions the same.

But experts are stunned that nearly 16 percent have actually increased the amount they’re saving as a result of the current economic downturn.

Retirement insecurity

“That seems to me very hard to explain, or understand,” says Alicia Munnell, director of the Center for Retirement Research at Boston College. “People don’t change. One thing we have learned about 401(k) plans is that inertia is a very powerful force, and people tend to stay where they’re put unless they’re forced to move. And hard economic times would force people to move,” she says.

Intuitively it would seem that the movement would be toward decreasing or stopping contributions altogether, but apparently some contrarians have taken the economic situation as a signal to pick up the pace on savings. It’s difficult to say if they are driven by insecurity, a need to batten down the hatches or some other inscrutable force, but experts agree they must be strongly motivated.

To change anything in a retirement plan requires a catalyst, Munnell says. “People have to be driven to act by something.”

Ralph Lunt, Certified Financial Planner and Chartered Financial Consultant with Strategic Capital Advisors in Ohio, agrees. “No one says, ‘I’m going to decrease my 401(k) contribution to buy a new SUV,’ because it’s a pain in the rear” to make changes in a retirement plan.

Changes to plan as result of the economy
Has the current economic climate caused you

to make any of the following changes to your

IRA, 401(k) or workplace retirement plan

over the past year? Have you…

Total 18 – 34 35 – 49 50+
Decreased contributions 15% 16% 13% 19%
Increased contributions 16% 13% 14% 18%
Kept contributions the same 73% 77% 75% 69%
Stopped contributing altogether 8% 9% 6% 11%
Made a withdrawal from your IRA or taken a

loan from your 401(k) or retirement account

9% 7% 4% 19%

“To take the time to dig up a password or go to HR and say, ‘I want to decrease my contribution’ — that usually means you need the cash flow or something is going on. And it’s the same on the flip side — increasing a contribution. Something has to spur them to do it,” he says.

Relatively few people across all age brackets (8 percent) stopped contributing altogether to their plans.

The big disconnect

About two-thirds of Americans polled have retirement accounts, whether through work or an IRA. That’s not far off from the numbers garnered last year by the Employee Benefit Research Institute, or EBRI, which found that some 60 percent of workers had access to a plan.

“I can’t imagine the employer who hasn’t read that a 401(k) plan is a good thing to reward, retain and recruit employees, and there are tax breaks out there for them too, but one-third of them don’t have them,” says Lunt.

People without employer-sponsored plans are on their own to find out about IRA options, which could be overwhelming for some, says Lunt.

Ages of those with an IRA or workplace retirement plan
Do you currently have any

type of IRA, 401(k) or

workplace retirement plan?

Total 18 – 24 25 – 34 35 – 49 50 – 64
Yes 65% 21% 67% 75% 75%
No 34% 79% 33% 25% 25%

Chanc Woods, a Certified Financial Planner in Dallas, cautions that including workers under the age of 21 could have skewed the data results.

Most of the time, people don’t really get a chance to start saving until after they graduate from college, he says.

Nonetheless, about 21 percent of people between the ages of 18 and 24 have a retirement account, but twice as many workers in that age group — 42 percent — say they expect to have more than enough money to retire in comfort.

“That is similar to what other studies have found,” says Munnell, referring to the obvious disconnect between expectation and preparation. “The Employee Benefit Research Institute has the Retirement Confidence Survey every year and a number of people are more confident than you think they should be, given their level of savings.”

The optimism spills over into the 25- to 34-year-old age group. By this age, 67 percent of workers have a retirement account and 37 percent believe they will have more than enough to retire in comfort. Only 12 percent fear that they will never be able to retire.

The outlook changes for people in midlife. Have the years made them more cynical — or have life events occurred that make a rosy retirement less realistic? From ages 35 and up (including those over 65), 75 percent have an IRA or workplace retirement account, but only about 21 percent say that they will have more than enough to retire in comfort.

The haves and have nots

Another not-so-surprising revelation: A strong correlation exists between income levels and the likelihood of someone owning some type of retirement account. Example: Almost 90 percent of workers raking in $75,000 or more have some type of retirement account. But just 13 percent of those making less than $20,000 have one, though the number nearly quadruples to 50 percent in the next earnings echelon of $20,000 to $29,000.

Ages of those with an IRA or workplace retirement plan
Do you currently have any type of IRA, 401(k) or workplace retirement plan? Less than $20K $20K – 29.9K $30K – 39.9K $40K – 49.9K $50K+ $75K+
Yes 13% 50% 64% 67% 79% 89%
No 85% 50% 36% 33% 21% 11%

Though high earners are the most confident of their retirement prospects, with 41 percent saying that they will have more than enough money to be comfortable, the poll reveals that the majority of people believe that they may not have enough.

“Roughly 70 percent feel they will get by, or worse, in retirement,” observes Lunt. “Much like exercise, many folks participate because they know it’s good for them, but few are training for a specific goal. Many folks participate in retirement savings, and know they need to do something, but also know they are falling well short.”

People without a plan

In fact, most people don’t have any idea about how much money they would need to retire.

“Basically most people haven’t figured it out,” says Certified Financial Planner Joseph Birkofer, principal at Legacy Asset Management in Houston. “A third of people have not and almost a third had used a financial adviser. But you could restate it by saying that two-thirds of people either don’t have a clue, threw a dart or asked a friend or relative.”

Correlation between retirement expectations and planning
Total More than enough to retire in comfort Just enough to get by in retirement Not nearly enough to retire without worrying You’re afraid you’ll never be able to retire
You haven’t figured out how much you’ll need 37% 26% 32% 40% 59%
You used a financial adviser to determine how much you’ll need 27% 38% 27% 29% 12%
You took a wild guess 15% 14% 14% 13% 18%
You used a retirement calculator 12% 13% 18% 13% 0.5%
You asked a friend or relative 10% 11% 13% 8% 7%

Among those who expect to be retiring with plenty of money to be comfortable, 26 percent have not made any attempt to find out how much money they would actually need.

“I think that is very consistent with what I have seen,” says Munnell. “You say, well are you confident about retirement and they say, ‘yes.’ And then you ask, well have you figured out how much you need? And they say, ‘no.'”

“Most people tend to be more confident than they should be,” she says.

On the other hand, of the one-fifth of Americans who believe they will never be able to retire, nearly 60 percent haven’t figured out how much they might need to do so.

“The old saying is that, you can’t get to where you want to go if you don’t know where you’re going,” says James Parks, Certified Financial Planner and member of the Financial Planning Association.

“Not having enough money is a worry and that is why people need to have a plan. It can get rid of some of that worry if they know, ‘I need to set aside X amount of dollars every year,'” he says.

Anyone at any income level could benefit from knowing what their goal should be, whether they use a calculator or visit a financial adviser to determine it.

Birkofer believes that retirement calculators are underutilized tools for most people. “Retirement calculators have not been embraced,” he says. “They require input and time, and people don’t have time or the information.”

Tellingly, those who used a financial adviser to find out how much money they’ll need to retire have the highest confidence level. About 38 percent are confident that their savings will more than suffice.

“I’d say that is a function of the market and self-selection,” says Birkofer. “You have to pay a financial adviser somehow, and if you have the assets to pay them, you are probably on the right track. So it’s a circle.”

Health care contingency plan

On top of day-to-day expenses, Americans must accumulate enough savings to cover health care costs in retirement. It’s an issue that can keep even the healthiest person awake at night. Most people understand that Medicare is not a ticket to an unlimited health care bonanza. Eighty-five percent of everyone surveyed knows that Medicare will not cover all of their medical expenses.

Ages of those with an IRA or workplace retirement plan
Do you believe Medicare will

cover all of your medical

expenses when you retire?

Total 18 – 24 25 – 34 35 – 49 50 – 64 65+
Yes 11% 18% 16% 10% 6% 10%
No 85% 74% 78% 88% 93% 84%
Don’t know 4% 8% 7% 3% 1% 6%

“I was impressed that such a high percentage of people recognize that Medicare will not pay for everything,” says Boston College’s Munnell.

But, respondents’ contingency plans to cover the gap between what will and won’t be covered does leave something to be desired.

“A lot of people are just hiding their heads in the sand about who is going to pay for their medical benefits,” says Birkofer.

About 52 percent of Americans say they will be very or somewhat likely to apply for Medicaid, a fact that CFP Parks finds disconcerting.

“With Medicaid for a single person, you would need to spend down your assets to approximately $2,000 per person before being able to qualify,” he says. “It’s difficult to do and difficult to qualify for.”

A large number of those polled, about 77 percent, also believe that they will be able to go back to work or use retiree health benefits from their former employer (62 percent).

“It seems to me that a decreasing number of employers are providing these (retiree health) benefits,” says Munnell. “People may be relying on them and being more optimistic than they should be.”

Backup plans for health care expenses
You said you do not believe that Medicare will cover all your medical expenses when you retire. How likely are you therefore to do the following? Would you say you are very likely, somewhat likely, not too likely or not at all likely to … Very/somewhat likely total
Use retiree health benefits provided by your former employer 62%
Draw down savings 57%
Return to work if you need to 77%
Apply for Medicaid 52%
Seek financial support from other family members 17%

And returning to work for health insurance may not be a viable option either. “Let me assure you that there is nobody out there giving already retired people, who are working part-time, medical benefits. It’s not even out there,” says Birkofer.

Well, it may be out there to a small extent, but not enough to meet potential demand.

The seemingly most logical choice for handling health care shortfalls was eschewed by a significant number of people. About 37 percent of respondents say that they are either not at all likely or not too likely to draw down their savings to pay medical bills.

“I want to know if some of these people don’t grasp what these kinds of costs can be,” says Lunt. “It’s not like it will be an extra $50 and you can get it out of the seat cushions on the couch.”

Similarly, the least popular option — relying on family for support in retirement — may actually be more probable than people care to imagine.

“I ask my clients what are the three sources of income in retirement? And, I say work is not an option forever, so it’s not a source,” says Birkofer. “The answer is government benefits, savings or your family. And you can always see them shifting around when I say family, because it’s not something that people want to consider.

“But it is going to be an option for a lot of people,” he says.

This national random-digit-dialed phone study of 1,004 adults 18 or older was conducted for Bankrate by GfK Roper Public Affairs & Media. The surveys were conducted from May 30, 2008 through June 1, 2008. The sample was weighted by demographic factors including age, gender, race, education and census region to ensure reliable and accurate representation of adults in U.S. households. The margin of error for the survey is +/- 3 percentage points. For full results and methodology, download this PDF.

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