Many Americans, especially the wealthy, are fooling themselves when it comes to preparing for retirement.
About a third (34%) of American households say they are at risk of not being able to replace their working income in retirement. However, an index that measures the proportion of working-age households at risk predicts that many more households will be at risk, with nearly half (47%) at risk, according to one study. said to be exposed to new overview Published by the Center for Retirement Studies at Boston University.
High-income households tended to be overly optimistic compared to low-income households.
The disconnect between belief and reality means that many households with too little savings will not be able to turn around and are less likely to experience a decline in their post-retirement living standards, while those who worry too much means that we may lose too much of it for the future.
“We found that about 28% of people were so-called ‘not worried enough,'” said Anqi Cheng, a senior research economist at the Center for Retirement Studies and one of the report’s co-authors at Yahoo Finance. told to “They think they are doing well, but according to our model, they are at risk of going wrong.”
The index was calculated by researchers based on the most recent Federal Reserve Triennial Survey of Consumer Finances data provided by 6,500 American households in 2019. This index measures the proportion of working-age households at risk of not being financially prepared for retirement.
This is where things get a little messy. The income assumptions for the index assume that people are working until age 65, annuitizing all their financial assets, and leveraging their home equity through reverse mortgages on their homes.
Truth be told, most people are unlikely to do all of this, so the rate of falling behind in the end can be much higher.
It’s also worth noting that “at risk” means different things for different incomes, according to the researchers. At-risk households with very low incomes may not be able to afford basic necessities. In contrast, high-income at-risk households are unlikely to go bankrupt. But they face the prospect of a drastically reduced lifestyle. Especially since many at risk assume they are not.
Overall, the report found that 41% of households with higher median incomes (varying by age and marital status) were at risk of declining living standards after retirement, and those who said they were concerned Only 17%. This is him 24 percentage points behind.
But the brief found that 45% of middle-income households were at risk, compared with 33%, a difference of 12 percentage points. . Among low-income households, 56% said they were at risk compared to 50%, a difference of 6 percentage points.
“Wealth illusions are part of the reason why they are likely not worried enough,” Chen said.
High-income households with housing are far more likely to fall into the not-worried-enough group, the report said.
“They have homes and they may think they’re doing well because house prices seem to be rising rapidly, but they still have a lot of debt on their homes. We forget that we are in the middle of nowhere,” Cheng said. “So they think they’re really wealthy financially, even when they really aren’t.”
Another group said, “$100,000 on your 401(k) may seem like a lot of money, but when you translate that into a stable source of retirement income, it’s only about $617 a month. people who have the illusion of wealth.” As a retirement benefit, it’s really not a lot,” she added.
Double-income couples can also fall into the overconfidence category. They may fall under the misconception that they are dandies when it comes to having enough money for old age, but they are more likely to fall short of expectations.
“If you have two earners, you’ll find that you seem to be doing pretty well on those two incomes, but if only one of them is saving for retirement, you’re keeping that dual income.” If only one of them is saving, their retirement spending will increase,” Cheng said.
Interestingly, despite those perceptions that are out of touch with reality, “nearly three out of five survey participants have an intuitive understanding of their financial situation,” Chen said. rice field.
“These are the people who have correctly assessed their situation. Those who are at risk and think they are at risk and those who are not at risk but who We are a combination of people who rightly claim they are not at risk.”
For example, according to the report, 40% of American households are in good shape and know their future, while 20% are in trouble and know it. Conversely, 15% said they were “too worried”, but researchers expected it to be fine.
“The way we look at risk is whether or not people will be able to maintain the same standard of living after retirement as they had before retirement,” Cheng said. “Families who are ‘not worried enough’ about their retirement income are either not currently saving enough or are least likely to change their retirement plans.” “Families who are” may unnecessarily sacrifice their pre-retirement standard of living.”
Kelly Hannon is a senior reporter and columnist at Yahoo Finance. She is a workplace futurist and career and retirement strategist, author of 14 books including In Control at 50+: How to Succeed in The New Work of Work and Never Too Old To Get Rich. is also the author of the book follow her on her twitter @Kelly Hannon.