Saturday, April 12, 2008

“Better” Pill?

I hate going to the doctor for a checkup.

Or the dentist, for that matter. I don’t even like to take my car in for “scheduled maintenance.”

Granted, for the most part, it’s no big deal—just a minor inconvenience of time, setting aside that gentle comment from the doctor about how I need to lose some weight, to get some more exercise. Or that somewhat incredulous tone from the dental hygienist as she says, “How long HAS it been since you flossed?”

Still, I hate going and will put it off just as long as humanly possible—not because the process itself is particularly painful or arduous, but because I am always nervous that there will come a time when they will find something that requires a more significant change in my lifestyle.

There is, of course, the chance that they might find something at a stage that allows for plenty of time for treatment—and I know that those regular checkups provide the best opportunity to head off something truly calamitous. I know this—rationally—but sometimes it just seems “better” not to know.

I’m sure that same kind of thinking holds sway in many participants’ minds when it comes to retirement savings projections.

"Lack" Luster?

Last week, the Employee Benefit Research Institute (EBRI) published its 18th annual Retirement Confidence Survey (RCS)—or, as I’m beginning to think of it, the annual lack of retirement confidence survey. Not surprisingly, the survey tracked the biggest one-year drop in confidence in its 18-year history (see “Retirement Confidence Plummets in EBRI Survey”)—to a level where less than one in five (18%) was “very confident” about having enough money for a secure retirement. What wasn’t so widely reported was that that 18% matched the levels in 1993, though it has fluctuated over the intervening years (retirees in 2008 were actually more confident than were 1993 retirees).

The RCS is based on phone interviews with participants and retirees, not an objective evaluation of their incomes and actual savings accounts, and it’s hard not to wonder how many are confident when they have no reason to be, IMHO. For, while only 18% were very confident, nearly half (43%) were somewhat confident, a number unchanged from last year’s RCS (see “Workers’ Confidence in Traditional Benefits Slip”). All told, then, well over half—in fact, nearly two-thirds—of respondents expressed some level of confidence in having enough money to live, and live comfortably, throughout their retirement years.

Unfortunately, there is little in the RCS data to suggest that this confidence is grounded in anything other than wide-eyed optimism, a willing suspension of disbelief, or good old-fashioned ignorance. About half of the workers surveyed by the RCS (among those that provided this information) said that the total value of their household’s savings and investments (excluding the value of their primary home and any defined benefit plans) is less than $25,000, and nearly a third plan to retire prior to reaching age 65. Nor do they seem to be expecting a lot of support from the government; most are not confident that Social Security will continue to provide the same level of benefits as it does today (37% are not at all confident of that result), and two-thirds are not confident about the level of support from Medicare.

Nor did the process of participating in the survey seem to do anything to heighten concerns. Although the survey’s authors thought that respondents would have less confidence in their retirement preparations at the end of the survey than at the start, that was not the case. Two-thirds gave identical responses—and the others were as likely to gain confidence as they were to lose it by completing the survey.

It’s one thing to feel confident about one’s retirement prospects, of course, and another altogether to feel that way with justification. Still, nearly half (47%) of this year’s RCS respondents said that they (or their spouse) had at least tried to do a retirement needs calculation, and that’s MUCH better than the 31% who had done so in 1994. That’s an important first step, and one of the few that, IMHO, ever lead to changes in savings behavior.

The challenge, of course, is getting those participants to take the time—and run the risk of knowing that they have to undergo a change in savings behavior to avert disaster…while there’s still time to do something about it.

- Nevin E. Adams, JD

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