- Albert Einstein
Think that the savings rate isn't set to increase in the next few years? It will. Why? It HAS TO or an entire generation is going to badly underfund their retirement. Why do I say that? Well, Wells Fargo just released their Retirement Fitness Survey, and had a few pointed things to say about the investment habits of pre-retirees ages 50 to 59.:
“There is a sense of denial among the pre-retirees,” said Lynne Ford, head of Wells Fargo Retail Retirement.
Even after suffering significant losses last year, many remain overly optimistic about their investment returns and the ability of their savings to fund their expenses after they stop working.
Only 23 percent of pre-retirees are saving more for their retirement than they were a year ago, the survey found. Most, some 57 percent, are saving the same amount, and 20 percent are saving less.
Perhaps even more startling is the extent to which their savings are falling short of their goals. On average, these pre-retirees expected they would need $800,000 to fund their retirement. However, most had only saved about $300,000.
Despite their inadequate savings, nearly two-thirds of the group lack any formal plans for retirement savings or spending strategies.
Of the 35 percent of those who had a written plan for retirement, only slightly more than half — about 52% percent — say they had updated it in the past year during the market downturn.
Okay folks, this is just plain silly. If you have a car crash, don't you think it might be wise to step out of the vehicle and assess the damage? You don't just blithely drive on! There's more:
Among the biggest mistakes people are making is over-estimating their investment returns and the amount of money that can safely be withdrawn each year in retirement.
In the survey, both those who were about to retire and those who already had said they expected their savings to grow by 8.7 percent each year, on average. However, the compound annual growth rate of the S&P 500 from 1958 through 2008 was only 6.6 percent.
People also under-estimate how long they will live in retirement, she said. A healthy person in their mid-sixties can easily expect to live into their eighties or even nineties. However, few people are prepared to support themselves in retirement for more than twenty years.
Okay, Mark here. Now we are turning a negligent activity into the criminal. It's not just denial any longer, it's willful ignorance. This continues our theme of people being their own worst enemies when it comes to investing. See this post. We continue our foibles while strolling through the land of planning as well, it seems.
Like Wile E. Coyote, we stepped over the cliff last year. Shouldn't we have said to ourselves that cliff and no parachute are a bad combination? But, according to Wells Fargo, it seems we just dusted ourselves off and continue to chase Roadrunner for the next episode.
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