"Left" Overs?

I’ve never been big on leftovers. Now, I know that many relish the taste of cold pizza for breakfast, while others swear that a desirable marinating takes place during storage. As for me, no matter how good the original dish, and despite the wonders of microwaving, I have a hard time getting excited about sitting down to a meal comprised of things that (at least in some cases) weren’t good enough to finish the first time.

When it comes to retirement savings, most still seem to “begin” with whatever is “left over” — after bills, living expenses, food and the like.

Not that we’re comfortable with that approach. A recent Wells Fargo/Gallup survey found that, taking their savings and Social Security income into consideration, more than two-thirds (69%) of investors say they are “highly” or “somewhat” confident they will have enough money to maintain their desired lifestyle throughout their retirement years. However, nearly half (46%) are still “very” or “somewhat” worried about outliving their savings, including 50% of non-retirees and 36% of retirees.

Nor is it a uniquely American issue; the Towers Watson Global Benefit Attitudes Survey found that in developed economies typically two-thirds of respondents believe their financial resources will support 15 years of retirement, but less than half are confident when considering 25 years into retirement.

So, how are we dealing with this worry about running out of money? Well, surveys are beginning to indicate that this uncertainty is already translating into extended work lives — or at least some expectation of being able to do so. Simply stated, for some, the “answer” to not having enough saved to retire is simply to work longer. Mathematically, those assumptions can produce a satisfying projected outcome. Unfortunately, like an assumption that your retirement investments will return 12% annually for the next 30 years, the data suggests that the reality of working longer is often undermined by circumstances beyond the individual’s control.

On the path toward more realistic assumptions, a growing number of providers now make available a projection as to how much monthly income a participant’s retirement savings would produce, and in May 2013, the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) has proposed that a participant’s pension benefit statement (including his or her 401(k) statement) would show his or her current account balance and an estimated lifetime income stream of payments based on that balance. These efforts will doubtless make it easier for today’s workers to anticipate how much retirement income they will have available, based on certain assumptions.

As for those already in retirement — and unable to adjust assumptions— some studies have shown that retirees are adjusting to their income realities — though arguably those are the kind of reality adjustments most would rather not be forced to make.

For those with time to prepare ahead, while we know that the requirements of the “here and now” frequently intrude on our preparations for the “there and then,” there’s something to be said for taking the time now to think about what those retirement savings “leftovers” could taste like — and how small the portions could be.

- Nevin E. Adams, JD