Half of Americans regret not saving earlier for retirement

Sep 14 2006 by Nic Paton Print This Article

Nearly half of American workers - and a third of those who have already retired - regret that they did not start saving for retirement earlier in life, a new survey has found.

The poll of more than 1,300 employees and 700 retirees by finance company Principal Financial also found that nearly a quarter of both groups regretted saving too little in their early working years.

The survey coincides with a UK poll by insurance firm AXA which also signals the dangers of saving too little, too late. AXA found in an experiment that most families found trying to live off the weekly state pension all but impossible, with their money running out after just three days.

In the U.S poll, around one in 10 of both groups sampled regretted not taking more financial advice when it came to planning their retirement income.

Asked what was the best lesson they had learnt, one in five said diversifying their portfolio was the sagest advice. Another one in six workers and one in 10 retirees said investing the maximum in workplace or other pension plans was the best thing to do.

"While we don't get a 'do-over' in terms of past savings behaviour, the good news is, it's never too late to start and make a plan to sock away just a little bit more," said Dan Houston, executive vice president of retirement and investor services at Principal.

"It's even easier now with new legislation providing more automated and simplified solutions with advancements like automatic enrolment, automatic deferral step-up programs and lifecycle funds.

"The law also will make financial planning and investment guidance in the workplace more available," he added.

Americans needed to be saving up to 15 per cent of their pay cheques during their working years in order to replace 85 per cent of their income in retirement, he estimated.

Yet less than one in 10 (eight per cent) who participated in company pension plans were saving this amount.

Worse, one in five of those who were eligible to join a company plan had not done so at any level, with most saving just five to 10 per cent of their pay cheques.

When workers switched jobs, some four out of 10 cashed in what they had saved rather than left the fund in their previous plan or rolling into another tax-advantaged savings plan.

"Given the savings deficit and the tax hit impact of cashing out of defined contribution plans, it's clear that job hoppers need much more help and discipline when it comes to their retirement rollover strategy," Houston said.

More than eight out of 10 workers and a quarter of retirees said the ability to afford good medical care kept them awake at night, followed by worries about not being able to enjoy the same quality of life they lived now and not being able to afford basic necessities in retirement.

The issue cited most often by retirees was the rising cost of inflation reducing their purchasing power.

But when asked if they have a plan to convert retirement savings into a steady income in retirement, just three out of 10 of those still in work and half of retirees said yes.

"Just investing the time to plan for the retirement transition with help from a financial professional, or your employer and plan service provider, can make the difference between achieving financial well-being in retirement or not," said Houston.

"It's alarming that fewer than half of those who are likely to retire in only 10 years or less have a transition plan," he added.

When asked how they would spend a sudden financial windfall (from an inheritance, lottery or early retirement buy-out package), three quarters of workers and more than a third of retirees said a priority would be to pay off any debts.

More than half of both groups said they would work with a financial adviser to figure out the best way to use the money. Four out of 10 workers and three out of 10 retirees said they would invest it.

A much smaller proportion said they would use such a windfall to take an exclusive vacation or spend the money on luxury items such as jewellery, car or a home.

More workers were satisfied with various employee benefits offered by their employers than in previous years, the survey also found.

The AXA year-long experiment to see how 26 British households coped on the state pension of £114 a week for an individual and £174 a week for a couple found that single women overspent their budget by 200 per cent, managing to last just two and a half days.

Men were not much better, overspending by 79 per cent and lasting four days on average.

The couples taking part in the experiment overspent by 168 per cent and lasted slightly longer than three days.

Having started the experiment on a Thursday, the households had used their entire weekly pension allowance by the time they sat down for Sunday lunch.

The highest overspend was £327.18 and the lowest just 54p, and only one household lasted the entire week on their pension, with £4.36 remaining.

AXA's Colin Nelson said: "The fact that we struggle to survive on this small amount is not surprising in itself but it is peoples' attitudes towards funding their retirement that concerns us most. The experiment has acted as a wake up call for those who took part; now we want to communicate that to the rest of the nation."

  Categories: