Some people are planning to retire when they reach a certain age, such as when they become eligible for Social Security or Medicare or can begin to draw a pension.
Other investors are aiming for a specific number in their bank account before they leave their job. A new survey suggests that hitting a retirement savings goal is now a more compelling reason to retire than turning 65.
Just over three quarters (76 per cent) of middle class workers say it is more important to have a specific amount saved before retirement than to reach a certain age, according to a Harris Interactive telephone survey commissioned by Wells Fargo. Only 20 per cent of those surveyed plan to retire at a specific age, regardless of savings.
However, the survey found that most middle class households aren’t even close to hitting their retirement savings goal. The survey of 1,500 people living in households earning between $50,000 and $99,999 ($25,000 and $99,999 for workers 25 to 29) or having household investable assets of $25,000 to $99,999 found that workers have accumulated, on average, only 7 per cent of their desired retirement savings.
They have a median of $25,000 in retirement savings and a median retirement goal of $350,000. Even among those in their 60s, over a quarter (29 per cent) have less than $25,000 saved for retirement. And the workers surveyed expect to live an average of 21 years in retirement.
Most middle class workers aren’t counting on the stock market to help propel them to a secure retirement. “For several years now, we’ve seen that Americans are undersaving for retirement and a majority do not trust the stock market as a place to invest for retirement,” says Laurie Nordquist, director of Wells Fargo Institutional Retirement and Trust.
Some 68 per cent of those surveyed say they aren’t confident the stock market is a good place to invest for retirement. When asked what they would do with a hypothetical $5,000 to invest for retirement, half of the respondents chose mutual fund or stocks, while 45 per cent said they would purchase a bank CD.
The youngest survey respondents were the most likely to choose the most conservative investments.
To make up the difference, most of the survey respondents (74 per cent) expect to work in their retirement years, both because they need the income (39 per cent) and because they want to (35 per cent). Workers between ages 40 and 59, who are closer to retirement, are more likely to say they will need to work in retirement (54 per cent) than younger workers (34 per cent).
Almost half (47 per cent) of those who expect to work in retirement plan to pursue similar work to their current job, while 42 per cent are looking for a position that requires less responsibility.
Many of these middle income households (53 per cent) say they would need to significantly cut back on spending in order to save more for retirement. A variety of financial concerns including monthly bills, health care, and education are generally given priority above saving for retirement.
Most workers (86 per cent) say it is also their goal to pay off their mortgage before retirement.
Many investors (43 per cent) aren’t planning to leave an inheritance to their children because they will need all their savings to support their own retirement, Wells Fargo found. Most of the survey respondents (72 per cent) say it is more important to enjoy experiences with their children or grandchildren than to save the money to pass on to their heirs (22 per cent).
The age workers plan to retire appears to increase as people age. Workers between ages 25 and 29 say they plan to retire at an average age of 62, compared to 65 among those in their 40s and 67 among people age 60 and older. And a quarter of those surveyed say they will need to work until at least age 80 to live comfortably in retirement.