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Are you Ready for Retirement?

Mike's Perspectives

Are you Ready for Retirement?

By Mike Lynch CFP®

Financial Planner

A half a century ago Jimi Hendrix asked boomers, “Have you ever been experienced.” Today, those same boomers are being asked, and are asking themselves, are they ready to retire and enjoy their experiences? Just under one in two can say yes, according to Boston College’s Center for Retirement Research, which created the National Retirement Risk Index (NRRI) to determine how many of us Americans are at risk of suffering lifestyle decline when we call it quits. Its researchers don’t actually ask people their opinions. Instead, they deploy sophisticated statistical techniques on Federal Reserve Bank data to determine that only 48 percent of Americans are on track for retirement. By this, they mean that they have a 90 percent chance of sustaining their standard of living if they use all of their assets, including home equity, in retirement. Strikingly, our preparedness is actually on the decline, dropping from 7 in ten in 1989, according to the Center’s February 2017 report “Do Households Have a Good Sense of their Retirement Preparedness?”

The Federal Reserve actually queries Americans directly every three years on our self-perception of retirement preparedness. It finds that more Americans report that they are at risk for retirement than the Center’s dispassionate analysis projects. According to the bank’s self-surveys, four in ten Americans say they are on track. The NRRI finds that one in two is in fact on track. The most surprising finding is that half of high-income Americans claim to be falling short of retirement funding while NRRI says that only 40 percent actually are.

This proportion may seem low, about right, or high. Who really knows? People have myriad reasons to either save hard for retirement or dismiss the concept out of hand. Ask an assembly-line worker, Mick Jagger, a professional athlete or AIDS patient about retirement, for example, and you’ll get a diversity of answers. The reasons for dismissing retirement can range from the love of work to poor health projections. That said, it’s striking that Americans are quite realistic about what their financial future holds. If anything, they are unrealistically pessimistic, not optimistic.

What accounts for the discrepancy? Researchers can only guess. Here’s mine. The news we get on retirement preparedness is relentlessly negative, as the press is driven by bad news and focus on easy to find hardship cases. This is compounded by the marketing of the financial services industry, which relies on American’s savings to generate its fees and knows the best way to generate large account balances is fear of poverty. This is exactly why most of us need an objective financial plan—be it to retire at 55 or work until we are 85. After all, the only retirement projection that matters is yours.

These are the views of Mike Lynch and not those of MML Investors Services, LLC or its affiliated companies, and should not be construed as investment advice. Neither the named Representative nor MML Investors Services, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, MML Investors Services, LLC makes no representation as to its completeness or accuracy. The author is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Securities, investment advisory and financial planning services offered through qualified registered representatives of MML Investors Services, Member SIPC.