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Fewer Americans Expect a Comfortable Retirement
by Dennis Jacobe, Chief Economist www.Erollover.com 2008
Fifty-five percent fear they won't be able to continue their current lifestyles
Sixty-nine percent of Americans say they are living comfortably right now, down four percentage points from last year and six points from 2002. However, the percentage of those yet to retire who think they'll be able to live comfortably in retirement fell even more precipitously, dropping to only 46% from 53% a year ago and 59% in 2002.
Many Worried About Having Enough Money for Retirement
When asked about their financial worries in
Gallup's April 6-9 Economy and Personal Finance
poll, 63% of Americans say they are worried they will not have
enough money for retirement, exceeding the 56%
who are worried about not being able to pay the medical costs
associated with a serious illness or accident and the 55% who are
afraid they will not be able to maintain the standard of living
they now enjoy. Even as Americans are bombarded by a wide range of
immediate-term economic concerns ranging from surging gas, food,
and healthcare costs to a decline in jobs and a debacle in housing,
their most prevalent fear seems to be centered on not being able to
achieve a comfortable retirement.
In part, this may be an often-unnoticed result of
today's economic turmoil. Not surprisingly
given the soaring cost of everyday essentials, the percentage of
Americans saying they have enough money to live comfortably right
now is 69%, down from the 75% of 2002 as well as the 73% of last
year. With incomes stagnating and prices surging, fewer Americans
have enough income to live comfortably.
In this context, it seems reasonable for fewer Americans to feel
confident they will have enough money to live comfortably in
retirement, when their incomes are not only generally lower but
also relatively fixed. Add in today's
comparatively low interest rates, and one might argue that many of
the 46% of Americans who think they'll be able
to live comfortably in retirement are being somewhat optimistic. Of
course, this does represent a 13-point drop from the percentage of
Americans holding this view in April 2002 and a seven-point decline
from just last year. Note also that the gap between the percentage
of Americans feeling they have enough money to live comfortably now
compared to those having similar expectations for when they retire
has increased from 16 points in 2002 to 23 points today.
Economy Affecting Retirement Income
Expectations
Fifty-four percent of those who have yet to retire say they expect
their 401(k), IRA, Keogh, or other retirement savings accounts to
be a major source of income for them in retirement. This is up two
points over the past year, despite the losses some people have
experienced in their tax-favored accounts during the recent past.
Social Security is mentioned second most frequently, with 31%
seeing it as an expected major source of retirement income, up from 27% a year ago, and not necessarily good news given the current condition of the
Social Security system.
One reason more future retirees fear they will not be able to live
comfortably in retirement may have to do with the impact of recent
economic trends on their financial well-being. For example, only
17% of future retirees expect individual stocks or mutual funds to
be a major source of their retirement income, down by nearly
one-third from the 24% who thought these investments would be a
major source for them a year ago. There has been a similar
six-point drop, from 23% to 17%, in the percentage expecting their
regular savings accounts or CDs to fill this role. At the same
time, the percentage of those looking to a work-sponsored pension
plan as a major source of retirement income has fallen five points,
from 31% last year to 26% this year, while those looking to the
equity in their homes is down four points, and is now also at
26%.
Commentary
Today's economic stagflation has one in four
Americans very worried that they
will not be able to maintain the living standard they now enjoy.
But with many baby boomers approaching retirement age, the full
impact of today's economic woes may not be
fully realized for several years.
For example, the home has traditionally been the average
American's primary source of wealth. However,
the current residential real estate debacle now threatens the value
of that asset for many. Not only are many Americans experiencing
foreclosure, but their neighbors are seeing their housing values
plunge as potential purchasers hesitate to buy and as foreclosed
properties drive down the value of nearby properties.
At the same time that their real estate values are declining,
Americans see the interest rates on their savings deposits at low
levels while the risks in the equity markets seem high. And while
one in five Americans who have not yet retired now say they expect
a part-time job to be a major source of their retirement income, double the level of 2001, this number could grow as an increasing
number of baby boomers find that today's
economy will make it hard to retire comfortably.
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