One of the most detailed retirement planning surveys to date shows that more than half of U.S. households are saving too little to maintain their current standard of living in retirement, with low-income and minority workers particularly at risk of running out of money.
An in-depth analysis of Federal Reserve consumer finance data found that only 44% of American households appear to be saving enough for retirement, based on their spending habits, retirement assets, savings rates, projected Social Security payments and expected retirement ages, according to a report commissioned by the Consumer Federation of America and DirectAdvice.com, an Internet financial planning service. The survey was conducted by Ohio State University economics professor Catherine P. Montalto.
The Federal Reserve data are considered the most current and comprehensive information available on consumers' finances. The survey's conclusions are consistent with other academic research on the inadequacy of American retirement savings, retirement experts said.
Montalto surveyed 2,400 households with a member in the work force. Other studies have focused just on baby boomers or pre-retirees. Previous surveys also have been criticized for failing to take sufficient account of home equity or stock market assets.
Virtually all the studies come to the same conclusion, however: that many Americans appear unlikely to be able to afford a retirement that maintains their current lifestyle, said Paul J. Yakoboski, head of retirement planning research for the Employee Benefits Research Institute in Washington.
The survey also confirmed financial planners' anecdotal evidence that people aren't saving enough.
"Most people have extraordinarily unrealistic expectations" about how long their retirement nest eggs will last, said Harold Evensky, a leading financial planner in Coral Gables, Fla., who has helped create retirement planning software for consumers.
Rather than save more, many Americans expect to simply live on less in retirement. A public opinion poll sponsored by the federation revealed that 59% of Americans expect their standard of living to be lower in retirement.
Using the Federal Reserve data, the survey found that the likelihood of maintaining a pre-retirement standard of living in retirement generally increased with income. Sixty-nine percent of households with annual incomes of more than $100,000 were saving enough for retirement, based on the report's projections, compared with only 23% of households with annual income between $10,000 and $25,000.
