Many Boomers are unrealistic about the real cost of living in retirement and how their plans to exit the workforce will mesh with their savings plans. For example, Boomers appear to be underestimating the impact that debt will have on their retirement, especially as many expect to enter retirement owing more than previous generations. Higher costs of living driven by more expensive homes, purchasing luxury items and excessive use of credit cards prevent debt pay down. (Related article: Retirement planning tips for baby boomers)
"There is a substantial disconnect between what Boomers expect their retirement expenses will be and what retirees are actually spending," says John V. Murphy, Chairman, President and CEO of OppenheimerFunds, Inc., sharing the insights from their retirement survey. "Boomers appear to be significantly underestimating their future income needs given today's longer retirements and the real cost of living in retirement which is constantly increasing due to factors such as rising medical costs and declining social security benefits." (Related article: Are you financially prepared for retirement?)
A lot can be learned from current retirees. Knowing what they believe they have done right and believe they could have done better can help Baby Boomers with planning and saving for retirement. Boomers anticipate that they'll have to work longer than their current retiree counterparts. When asked at what age they think they'll retire, only a small portion of Boomers said before they reach 60. Yet over half of the retirees surveyed left the workforce before that age. Also, the majority of Boomers say they will continue to have some form of paid employment after they "retire." On the contrary, a quarter of current retirees said they never had to work in retirement. Regardless of when they think they will retire, Boomers should have a plan in place in case they are not able to work as long as they expect. (Related article: Will Baby Boomers be hurt by privatization?)
When it comes to saving, less than half of the Boomers surveyed wish they had saved more. Yet when asked to consider their saving and investing habits, 98% of retirees had regrets about pre-retirement spending. Boomers believe they will need to save less than ten times their current income for retirement, yet the average life expectancy in retirement is twenty years. Also, while they perceive that their expenses will decline once they stop working, almost 70% of retirees said they now spend the same or more as when they worked. (Related article: Financial advisors key to retirement planning)
"When it comes to Baby Boomers and financial planning, there is a striking contrast between perception and reality," said Murphy. "The overriding lesson is clear: The earlier you start planning, the less likely it is that you will have to compromise your retirement dreams and plans. Make planning a priority now, not when retirement is imminent."
The survey was conducted between September and October 2004 among Americans ages 45 to 75 with household incomes of at least $75,000 or household savings and investments of at least $300,000 (not including primary residence). It measured the views and attitudes of working boomers and retirees regarding retirement, preparations for retirement and confidence in retirement planning. Six hundred workers and 401 retirees were surveyed. The telephone interviewing was conducted by Matthew Greenwald & Associates, a leading market research firm focused on retirement planning based in Washington D.C. The margin of error (at the 95% confidence level) for the total number of respondents in this study (1,001) is a plus or minus 3.2 percentage points.
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