Recent retirees are the first generation that has had the ability to contribute to defined contributions plans such as 401(k)s for the majority of their careers. Unlike the traditional pension plans of their parents, these plans require more active management from the worker. They must decide their levels of contribution and, to some extent, how the funds are invested.
So, how did these workers do in managing their retirement funds now that it is time to draw on them? Are they content with the results, and does the following generation feel the same way? A recent T. Rowe Price survey set out to answer those questions.
In general, the findings are that recent retirees are fairly satisfied, and those who will be entering retirement in the near future (ages 50 and up) are more apprehensive.
Of the recent retirees, 89% report being very or somewhat satisfied with their retirement, and 74% report being better off than their parents were at the same age. They have learned to live with less and are content with that – on average, retirees are living with one-third of their pre-retirement income, 57% say they live just as well or better than they did during their working years, and 60% would rather adjust their spending down in a bad market to preserve their nest egg.
Other interesting findings with the recent retirees include:
- Social Security – Social Security makes up 43% of the recent retiree’s income. Traditional pensions and IRA/401(k) programs are second and third at 19% and 18% respectively.
- Part-Time Work – 21% of the recent retirees are engaged in either part-time or full-time work, and another 14% are looking for work.
- Couples – Couples report higher satisfaction, while single retirees have more struggles – “both financially and emotionally” according to the survey. The singles are disproportionately women. The overall difference in median assets is huge, with $731,000 for married couples and $248,000 for single retirees.
- Withdrawals – The median yearly withdrawal is 4%, a typical recommendation by experts – but some 30% withdrew 1% or less. Many are wisely stretching their dollars to account for higher expenses in later years, such as medical or long-term care needs.
Many retirees-to-be are in decent shape with respect to nest eggs, yet are more pessimistic about the future.
- Assets – The median assets of the working households was $465,000 – but they are invested even more conservatively than the recent retirees are, with only 47% of investments in stocks. Perhaps they are wary of an inflated market.
81% of the workers own homes, with a median home equity value of $171,000. However, despite the advertising efforts of Fred Thompson and the Fonz, 60% do not plan to draw retirement income from home equity.
- Insecurity – 29% of workers fear losing their job within the next year, 49% expect to reduce their standard of living, and just over half believe they may not have enough money to pay for healthcare.
- Delays – Many workers are planning to delay retirement and benefit draws. The average expected retirement age is 68, and just over one-third of workers are willing to delay their benefits until age 70.
In general, the fears of retirees-to-be do not seem to match up with their actual situation. It may be concerns that economic or policy changes can erode the value that they currently hold. While it is good to be cautious, excessive pessimism is counterproductive.
Aimee DeCamillo, T. Rowe Price’s Head of Retirement Plan Services, summed it up nicely by saying, “For workers approaching retirement, we know there is anxiety and uncertainty as they look ahead and think they can’t possibly be prepared for retirement. But this study demonstrates that you can do it.” Indeed it does.
It also points out that Social Security plays a major role – so with any significant changes in Social Security benefits, expect a similar survey to have very different results.
Let the free MoneyTips Retirement Planner help you
calculate when you can retire without jeopardizing your lifestyle.