The long recession and slow recovery in the economy have forced millions of Americans to give up their dreams of retiring at the traditional age of 65, with many now expecting to work until they're 80 or older. That's not surprising, especially given that fewer than half of all Americans have managed to save even $25,000 in retirement savings.
What's more surprising, though, is that even among those who have quite a bit more money stashed away for retirement, the majority have started accepting the reality that they'll need to work longer. A recent survey from Bank of America's (BAC) Merrill Edge shows how big a challenge retirement finances are even among the better-off.
Reining In Expectations
Even with investment accounts having recovered much of their lost ground, so-called "mass affluent" people with between $50,000 and $250,000 to invest don't think they have enough to retire when they had originally planned to. Of those surveyed, 56% said that they expect to retire later now than they thought a year ago, with only 7% expecting to retire earlier. That's a big shift even from a couple of years ago, when only 42% were revising their retirement age upward.
The things that wealthier Americans are worrying about mirror the concerns of the overall population. Affordable health care remains the primary concern, as costs continue to move higher. With other surveys estimating that the typical retiree will spend $240,000 on health care over the course of his or her retirement for out-of-pocket costs, that concern is quite justified. Few have the financial resources necessary to fund potential health care needs as well as other basic necessities, let alone the lifestyle they'd prefer to lead after they leave their careers for good.
Other concerns have some retirement savers feeling out of control of their destiny. Three-quarters of those surveyed say that they worry about the potential effect of the economy on their retirement prospects, while almost as many focus on the need to make their retirement assets last throughout their lifetime.
From a personal finance standpoint, the good news is that Americans of means aren't content to sit idly by and hope for the best. Rather, they're taking steps to boost their personal accountability by managing their investments more actively. The survey found that by taking responsibility for planning as well as setting up rainy-day funds for unexpected financial expenses and getting their debt levels down, the mass affluent are confident they can get the job done.
Three-quarters of those surveyed want guidance for their finances. Although many seek expertise for basic tasks like allocating their portfolio or building a financial plan, others look for advice on discrete tasks like moving 401(k) balances from an old employer to a new investment account. Yet nearly half of those surveyed don't look for advice specifically about their investments, due largely to their wanting not to give up control of their portfolios to a broker or financial advisor. Cost savings is also a factor, as many correctly believe that they're better able to steer their money toward lower-cost investments themselves than if they used a broker.
Of course, Merrill Edge has a horse in the race. As a broker serving self-directed investors, it seeks to provide help with retirement investments. Yet regardless of which source of financial information you use, the key to long-term success is getting the up-front training you need in order to get up to speed. Then, you can work independently to strive toward becoming a better investor.
Be Smart With Your Money
Going beyond the survey, one of the biggest assets you have on your side is your ability to remain flexible. The idea that you have to retire at a certain age is an outdated concept, especially given the near impossibility of guaranteeing that you'll be able to hold a job as long as you want. With the radical changes in the labor market and economic conditions, any financial plan that requires you to work until a certain age has fundamental flaws that could blossom into huge problems.
The better approach is to acknowledge that you can't plan for every contingency but to do as much as you can to reduce your financial risk level. That way, you'll be better able to handle whatever gets thrown your way.
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