Retirement overconfidence: The bad and the good

Most older workers and retirees express confidence that they'll have a successful retirement. Yet many older workers have unrealistic expectations about the future, and many retirees say their retirement nest egg is insufficient.

These are just a few results from the latest survey from the Transamerica Center for Retirement Studies (TCRS), which asks about the retirement outlook of a nationally representative sample of more than 2,100 workers age 50 and older, and then compares it with the actual experience of over 2,000 current retirees.

Of the retirees surveyed, almost three-fourths (72 percent) are "somewhat" or "very" confident that they'll be able to maintain a comfortable lifestyle during retirement. An overwhelming majority (94 percent) say they're generally happy, and 84 percent have a strong purpose in life. Most retirees (70 percent) report they're in good or excellent health.

Retirees are planning for a long life (28 years is the median response), and they plan to live to a reported median age of 90. The challenge, however, is that most of them don't have sufficient financial resources to support a long life. Few retirees (16 percent) strongly agree that they've built a sufficient nest egg of retirement savings, and the savings they report seem to correspond with this conclusion.

The reported total median household retirement savings at the time of retirement was $131,000, with a wide gap between married couples ($225,000) and singles ($53,000). None of these numbers is sufficient to generate significant retirement income to supplement Social Security, however. Applying the 4 percent rule to the largest reported median of $225,000 results in an annual retirement income of $9,000 to supplement Social Security benefits.

As a result of these low financial resources, almost two-thirds of retirees (61 percent) report that Social Security will be their primary source of income. Yet the median reported claiming age for Social Security benefits is age 62, the earliest possible age with the lowest possible benefit amount. Delaying the start of Social Security benefits is one great way to improve your financial security in retirement, whether you're single or married.

The picture for older workers isn't much better. Over half of all workers age 50 and older (54 percent) plan to continue working at least part-time in retirement, often to make ends meet. Yet only one in 20 current retirees (5 percent) are currently employed or self-employed.

But is the reported optimism in the face of these discouraging numbers a bad thing? Well, it depends on how you look at it.

It's certainly a bad idea not to plan and take action steps to make sure you have enough financial resources to last for a long time. According to Catherine Collinson, president of TCRS, "One of the most important things within reach that retirees and pre-retirees can do is formulate a financial plan to identify opportunities, vulnerabilities and strategies to address them."

Yet only 10 percent of retirees and 14 percent of older workers develop a written strategy to develop sufficient income to meet their living expenses in retirement.

What could be good about this reported overconfidence? Resilience in the face of adversity is one of our most desirable characteristics. If you simply throw up your hands and give up instead of continuing to move forward with confidence, the odds that you'll have a successful retirement decrease significantly.

The strategy of many retirees for handling unexpected events is "I'll deal with that when it happens." But while this attitude drives financial planners nuts, it's much better to remain confident than to give up hope altogether.

So, where's the happy middle ground? Do some planning to assess whether your retirement resources are sufficient, then come up with a realistic age at which you can stop working and retire. According to Collinson, "People are living longer than at any time in history, yet the age at which we stop working has remained relatively unchanged." It will take some planning if you want to continue working in your retirement years.

Spend at least as much time planning for your retirement, which could last a few decades, as you would planning your next two-week vacation. And remember Winston Churchill's great advice for older workers and retirees: "Never give up!"

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.