According to the Prudential 2018 Survey of Retirement Preparedness, when pre-retirees were asked their level of retirement preparedness, they give themselves an average grade of “C”. Approximately 40% added that they are “not at all sure” how much income they will need each month in retirement and astonishingly, 25% of pre-retirees are not sure how much they are currently saving for retirement.
According to the CRR National Retirement Risk Index, working-age households at risk of being unable to maintain their pre-retirement standard of living during retirement increased from 31% in 1986 to 50% in 2016.
This seems to be in stark contrast to current retirees, where over half of current retirees say they are living their “dream retirement”. This group of those living their retirement dream share financial best-practice behaviors compared to those who are less satisfied in retirement:
- Started saving for retirement six years earlier, on average
- More knowledgeable about investments
- Show more willingness to take risks
- More likely to use a financial advisor
The top lessons retirees would pass on to today’s pre-retirees are:
- Save more
- Start saving earlier
- Plan on retiring later
Some of the differences between pre-retirees and the currently retired are:
- More focused on paying off debt (student loan debt forces couples to put off purchasing a home as well as reduces their ability to put down a large down payment)
- Less optimistic that they will receive Social Security benefits
- Little expectation of receiving pension income in retirement
- Lower concentration of investments allocated to equity versus fixed income
Actions to consider
Pre-retirees could benefit from leveraging tools available through financial advisors that help to estimate income and expenses in retirement and from working with financial advisors to create a financial plan that is expected to cover the projected retirement expenses and accommodates unexpected developments.
Given the importance of compounding of returns over time, pre-retirees could benefit from starting to save and invest for retirement now or increasing their savings rate if they are already saving for retirement.
Pre-retirees could benefit from crafting an asset allocation strategy that makes sense for their investment goals and tolerance for risk.
Prudential’s 2018 Retirement Preparedness Survey can be downloaded here.