When you’re young, retirement is a far-off,
almost abstract concept. When you’re old, it’s more of an in-your-face reality.
That explains the results of a recent survey of 401(k) investors that shows
people ages 39 and younger expect to retire when they’re 62, while investors in
their 60s put that number closer to 68 (and it’s even higher for
septuagenarians, who in theory should be retired now).
Research and consulting firm Cerulli
Associates surveyed 1,000 active 401(k) plan participants in this year’s second
quarter to see what they plan to do with their 401(k) savings at retirement.
We’ll get to those findings in a moment, but one of the overarching themes of
the results was the disconnect between investors’ perception of their
retirement readiness and the reality of their current financial situation.
Cerulli asked investors in six different age
groups what their expected retirement age is. For people in their 20s, the
average expected retirement age is 62.5. For those in their 30s, it’s 62.0.
Folks in their 40s pegged the average number at 64.6, while those in their 50s
put that figure at 65.4. Among the two oldest cohorts, people in their 60s
chose an average age of 67.8, while those in their 70s expected that number to
be 73.4. In short, Cerulli says, these numbers indicate older people
approaching or at traditional retirement age are more realistic about their
retirement prospects, while younger Americans are overly optimistic regarding
their perceived ability to retire with a sufficient nest egg.
The concept of retirement is one of this
country’s most fraught societal issues in the post-pension-plan era. We obsess
about how to save for it, and then we fret about how to spend for it and
whether we’ll have sufficient funds for our ever-lengthening life spans. Along
those lines, Cerulli asked 401(k) plan participants ages 45 and older what they
plan to do with their savings after they retire. One-quarter of respondents
replied “I don’t know,” while another one-quarter said they “will ask my
existing financial advisor for advice.”
“The latter data point can be read as a
marginally more prepared version of ‘I don’t know,’ which, in sum, suggests
that half of 401(k) plan participants have no idea what to do with the savings
they have diligently set aside for retirement,” said Jessica Sclafani, director
at Cerulli. The latter data point is also right up the alley for financial
advisors, who get paid the big bucks to help guide their clients’ financial
In that vein, another 8.5% of respondents said
they will hire a financial advisor to help decide how to handle their 401(k)
As part of the overall survey, half of
respondents confidently stated they’re prepared for retirement. In its report
about this survey, The Cerulli Edge—U.S. Retirement Edition, 2Q 2018 Issue,
Cerulli says it is “somewhat skeptical” about that claim because a little more
than half of the 401(k) plan participants it surveyed contributed 6% or less of
their salary to a 401(k) account. And another 13% contributed less than 8%.
Cerulli notes that financial advisors and
consultants typically recommend that plan participants try to set aside at
least 15% of their salary (including an employer contribution) into their
401(k). Based on its survey results, Cerulli concludes there’s a significant
savings gap—if not a reality gap—among a large number of 401(k) plan investors
regarding their retirement preparedness.
here for the original article from FA Mag.