Financial Literacy 2007 - Retirement
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Retirement: the big disconnect

Ah, retirement! No matter how we envision our own golden years, it seems we're a nation of optimists.

Seventy percent of workers feel very or somewhat confident that they'll have enough money to afford a comfortable life in retirement, according to the latest annual retirement survey by Employee Benefit Research Institute, or EBRI.

Unfortunately, rosy expectations don't square with reality. Sure, we can envision languid days dictated by nothing more complex than whim and desire. But the truth is, rigid weeks punctuated by commuter schedules, project deadlines and the buzz of alarm clocks may hit closer to reality.

By the numbers: The nation's workers say ...
  • 70 percent feel very or somewhat confident that they'll have enough money to afford a comfortable life in retirement.
  • 66 percent report that either they or their spouse have saved something for retirement.
  • 68 percent are "not at all" or "not too" confident that Social Security will continue to pay.
  • 13 percent have no idea how much money they'll need for retirement.
  • 49 percent of those who have not saved are nevertheless confident about a comfortable retirement.
  • 49 percent of workers of all ages have less than $25,000 in retirement savings.
Source: EBRI's 2007 Retirement Confidence Survey

More than half of all individuals have no idea how much money they'll need for retirement. Many intend to rely on government and employer programs that may not adequately cover future expenses. Even optimists are unprepared. A full 49 percent of those workers who are confident about retirement haven't saved anything for life after work.

"There's a very large disconnect," says Craig Copeland, a co-author of EBRI's annual retirement survey. "They still think there will be money there for them."

Why are we so optimistic? Part of the problem stems with those who've already retired.

"Workers see them and think they're fine," says Copeland. "But if you look at the group of retirees who are 65 and older, nearly two-thirds of them rely almost exclusively on Social Security for their income. Social Security benefits provide 80 percent of income for 60 percent of today's retirees, with average monthly Social Security payout running just over $1,000.

But will the program continue to cover the bulk of income for future generations? And if so, will it be sufficient to meet their expenses? It's impossible to say with certainty, of course, but 61 percent of workers are "not at all" or "not too" confident that Social Security will continue to pay benefits that are of equal value to payouts today.


Their skepticism is not unfounded. Social Security is undergoing significant changes sure to impact how well people fare in retirement.

Changes afoot in Social Security benefits

Withholding for Medicare Part B, which is automatically deducted from Social Security benefits, now runs more than $93 a month and is expected to grow. Meanwhile, the amount of Social Security income not subject to taxes hasn't been indexed for inflation. As income grows over time -- and Social Security benefits increase with it -- "more Social Security income will be subject to tax in the future," says Mark Luscombe, principal tax analyst at CCH, the tax law publisher.

And, individuals must wait longer than ever before -- up to age 67 for those born in 1960 or later -- before they're eligible to receive full benefits. That's sure to be an important consideration for anyone planning to retire early. Yet, only 18 percent of working respondents to the EBRI study knew the correct age at which they'll be able to receive full benefits.

Demise of pensions

Meanwhile, the other "safety net" -- old-fashioned pensions -- is likely not to provide the kind of financial help it has in the past. In 1985, 91 percent of major U.S. employers offered pension benefits. Today, 61 percent do, according to Hewitt Associates, a workplace research and consulting group.

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