Sunday, April 13, 2014

Needs "Assessment"

My eating habits have always tended toward what my mother politely calls “finicky.” Oh, she tried repeatedly over the years to broaden my horizons but without much success. My wife has similarly tried to expand and improve my dietary choices over the years, but even with the admonition of needing to set a good example for my kids, (my) old habits die hard. In exasperation, she’ll frequently say, “Have you ever even tried _____?”

One of the more surprising findings from the 2014 Retirement Confidence Survey was that fewer than half of respondents indicate they (or their spouse) have EVER tried to calculate how much money they will need to have saved so that they can live comfortably in retirement.

What’s even more surprising, of course, is that that percentage has held fairly consistent for the past decade, “peaking” at 53 percent in 2000, before slipping to 38 percent in 2002.[1] It’s recovered since, of course, but still—in this day and age, with so many free and easy-to-access tools available, despite the pressures of daily life and finances, it’s hard to imagine that so many have still not even bothered to make a single attempt to do so.

As you might expect, some are more likely to do a retirement savings needs calculation than others. Married workers are more likely to have done so than singles, and the likelihood of doing the calculation increases with household income, education, and financial assets. Moreover, workers reporting that they, or their spouse, have an IRA, defined contribution, or defined benefit retirement plan are more than twice as likely as those who do not have these to have done a calculation (56 percent vs. 25 percent).

There do appear to be benefits—both emotional and tangible—to doing a retirement needs calculation. Consistent with prior RCS findings, despite having set higher savings goals,[2] workers who have done a retirement savings needs calculation are more likely to feel very confident about affording a comfortable retirement (25 percent vs. 13 percent who have not done a calculation in this year’s survey). In fact, a previous EBRI analysis found that those using an online calculator appeared to set more adequate savings targets, as measured by the probability of not running short of money in retirement.[3]

So, why haven’t more done a retirement needs calculation? Perhaps they’re nervous about the time and energy it might take to do one; maybe they’re worried they don’t know enough to do the calculation; it might even be, particularly if they’ve made no preparations for retirement, that they are afraid to find out the answer.

Whatever their rationale, a great place to start figuring out what they -or you- will need is the BallparkE$timate,® available online at www.choosetosave.org[4]

It’ll be good for you—will likely improve your retirement prospects—and you might even enjoy it.

Nevin E. Adams, JD

More information from the 2014 Retirement Confidence Survey, the longest-running survey of its kind in the nation, is available in the March 2014 EBRI Issue Brief, “The 2014 Retirement Confidence Survey: Confidence Rebounds—for Those With Retirement Plans,” online here.

[1] Even among those who have made an attempt, the methods of calculation reported have been quite “varied”—according to the 2013 Retirement Confidence Survey, workers often guess at how much they will need to accumulate (45 percent), rather than doing a systematic retirement needs calculation. Eighteen percent each indicated they did their own estimate or asked a financial advisor, while 8 percent each used an online calculator or read or heard how much was needed.

[2] Workers who have done a retirement savings needs calculation tend to report higher savings goals than workers who have not done the calculation. In this year’s RCS, 29 percent of workers who have done a calculation, compared with 15 percent of those who have not, estimate they need to accumulate at least $1 million for retirement. At the other extreme, 17 percent of those who have done a calculation, compared with 37 percent who have not, think they need to save less than $250,000 for retirement.

[3] See “A Little Help: The Impact of On-line Calculators and Financial Advisors on Setting Adequate Retirement-Savings Targets: Evidence from the 2013 Retirement Confidence Survey,” online here.

[4] Organizations interested in building/reinforcing a workplace savings campaign can find a variety of free resources at www.choosetosave.org, courtesy of the American Savings Education Council (ASEC). Choose to Save® is sponsored by the nonprofit, nonpartisan Employee Benefit Research Institute Education and Research Fund (EBRI-ERF) and one of its programs, ASEC. The website and materials development have been underwritten through generous grants and additional support from EBRI Members and ASEC Partner institutions.

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