Do you have a good sense of how prepared you are for retirement?
The majority of working-age Americans (52%) are “at risk” of not having enough to maintain their living standards when they retire, according to the National Retirement Risk Index calculated by Boston College's Center for Retirement Research.
So academics there were curious: how well we are able to assess our own retirement readiness?
Do those who are off-track know it? Do the well-prepared still worry?
Alicia Munnell, the director of Center for Retirement research and co-author of the Do Households Have a Good Sense of Their Retirement Preparedness? brief, says, “Almost 20% incorrectly think they are prepared, in large part because they do not recognize that their 401(k) savings are inadequate to last for their whole retirement period.”
60% do know if they are on track or not, and the other 20% think they are not prepared when in fact they could afford to maintain the same standard of living they have now.
The common causes of both overestimated and underestimated preparedness are helpful reminders for anyone's retirement planning. A few take-aways:
- Those who are "not worried enough" — falling behind on retirement when they think they're on track — are actually often high earners. In particular, the study found that people with a defined contribution plan like a 401(k) "may suffer from a 'wealth illusion.'" They see a large stockpile in their retirement account and don't consider the rules and best practices of withdrawing it. They also might not think realistically about what it takes to maintain their current standards of living.
- Those who are "too worried" — i.e. better-off than they think they are — often don't consider how much their home boosts their retirement outlook. With a reverse mortgage or a downsize, they can have more cash on hand.
Of course, this is just the tip of the iceberg. For a more complete set of tips, see what Alicia Munnell and other experts prescribe in Forbes' latest special feature, Retirement Checkup.
