Retirement panic may be running hotter than the numbers

Nearly half of U.S. workers say they cannot afford to save for retirement right now, according to a survey from insurance broker NFP cited by MarketWatch columnist Brett Arends.

That grim finding lands alongside another worry sign: financial company Schroders found that workers in company retirement plans think they need an average of $1.2 million to retire, while half have less than $500,000 saved, Arends reported.

Arends, writing in an opinion column for MarketWatch, argues that the headline retirement target may be less useful than it sounds because many workers are guessing at a number rather than working from individual spending, income and housing choices.

Retirees report more comfort than workers expect

Gallup’s latest polling shows a sharp split between fear before retirement and life after leaving work. According to Gallup data cited by Arends, 45% of working people said they expected to have enough money to retire comfortably, while 82% of retired people said they had enough.

Arends said similar patterns have appeared for years in Gallup polling and in research tracked by the Employee Benefit Research Institute, a retirement-focused think tank.

One reason, according to Arends, is that many people spend less once they stop working. He cited author Fred Brock’s argument that retirees may also lower their costs by moving away from expensive job markets once they no longer need to live near work.

Healthcare remains a major retirement concern, and Arends notes that people who need nursing-home care may eventually have costs covered by Medicaid. Federal government data cited in the column put average annual healthcare costs for people over 65 at less than $8,000 per person.

Annuities and Social Security change the income picture

Arends points to immediate annuities as one way retirees can translate savings into guaranteed income. These insurance products exchange a lump sum for payments that last for life.

According to figures from ImmediateAnnuities.com cited by Arends, a 65-year-old woman could currently buy an annuity paying 7.6% of her savings balance each year for life. That would mean $7,600 a year for every $100,000 put into the product.

If that same 65-year-old woman wanted payments that rise 3% annually, Arends reported, the starting payout would be 5.8% of the balance. On $1.2 million, that would produce $70,000 in the first year, rising 3% each year, or $91,000 a year without the annual increase.

Arends said men generally receive higher annuity payouts because they tend to have shorter life expectancies, and older buyers receive larger payouts. He also stressed the trade-offs: annuity money is locked up, the capital usually cannot be accessed, and heirs often receive nothing after the buyer dies.

Social Security adds another layer. The average retirement benefit is currently about $25,000 a year, according to Social Security Administration figures cited by Arends.

Arends wrote that he does not expect benefits for lower- and middle-income retirees to be cut, while acknowledging that his forecast could be wrong. He said he expects any political compromise to address the system by limiting benefits for higher earners and raising some taxes.

Claiming age also matters. Arends reported that taking Social Security at 62 leaves monthly checks at about 56% of what a retiree would receive by waiting until 70. He wrote that financial advisers and analysts generally agree delaying benefits can improve retirement finances for many people.

Arends cautioned that retirement insecurity remains serious, especially for Americans with fewer resources, and that bad luck, disasters and poor choices can still derail plans. His conclusion: panic does not fix the problem, while saving more, investing carefully, cutting costs and timing benefits can improve the odds.

This story draws on original reporting from MarketWatch.