Over-Optimism Abounds in Americans' Retirement Planning

September 23, 2004 (PLANSPONSOR.com) - Retirement planning for middle income Americans is on the rise, but the numbers still point to an overwhelming lack of understanding about what is needed for a comfortable retirement.

A study by ING on middle-income Americans’ readiness for retirement showed that 56% of retirees claim they have planned ahead for their ‘retirement paycheck’, up from 31% just two years ago. Those most likely to claim they are ready are over 50, have a 410(k) or similar plan, have an income of over $75,000, have older children, and have long-term care through an insurer.

Other indicators, however, point to an impending retirement funding problem. Middle income Americans are more optimistic then they should be regarding their retirement planning, the survey shows. While only 33% are building their nest egg and planning ahead, three in four believe their planning ranks as above average. Two in three want to retire by the age of 60; however, only one in three expect this to be financially viable.

Future retirees don’t expect to make up for shortfalls from Social Security, however. Americans in the middle income bracket also lack confidence in the health of the Social Security system. Sixty-seven percent do not expect to receive income from Social Security upon retirement. As the respondents get younger, there is even less confidence. Of those over 50, one in three expect to collect Social Security Benefits. For those between 30 and 49, only one in five expect to garner the same benefits.

Americans are responding to this perceived Social Security crisis by more and more investing in 401(k) or similar plans, with younger workers (who expect less benefits from Social Security) outpacing older workers. Three in five respondents between 30 and 40 have 401(k) or similar plans, compared to only two in five over 50. Americans with children under 18 were also more likely to invest in a 401(k)-style plan, with 60% claiming they had a plan, compared to only 40% for those who do not have children. On average, Americans claimed that their 401(k)-style plan made up 36% of their investable assets.

A large minority of middle income Americans do not know how long they will live, something of importance for those calculating benefits. More than one in three middle income Americans believe they will live 20 years or less in retirement, yet research shows that they will live almost twice as long, according to the survey.

The survey, entitled The ING Retirement Readiness & Middle America Survey, was conducted in July of 800 individuals over age 30 and who are employed or have retired, plus 200 respondents who were between 50 and 70 who have investable assets between $100,000 and $1 million.