Affluent Americans May Be Underestimating Their Needs in Retirement Says New Schwab Survey

Despite a general sense of confidence in their financial readiness for retirement, affluent Americans might be overlooking critical tenets of retirement planning, according to a new Schwab survey of approximately 1,800 investors across nine major U.S. markets. More than eight in 10 (84 percent) investors say they have a retirement plan in place, and 80 percent of these respondents say they are confident about their financial readiness for retirement.

However, when it comes to estimating how much money they’ll need once they actually retire, respondents say they’ll need on average around $66,000 in income annually, far lower than their current average income that is approximately $115,000.

“Everyone’s retirement saving and investing plan is going to be unique, but each plan needs to start with a realistic assessment of personal situation and goals,” says Carrie Schwab-Pomerantz, Charles Schwab & Co., Inc. senior vice president, CFP®. “In many cases, we tell clients to assume they’ll need roughly the same annual income in retirement as they had beforehand unless they anticipate a significant lifestyle change, and to take into account longevity risk when planning how much money they might need.”

The survey also finds that, on average, respondents plan to work until they are 67 years old and expect to live to the age of 86, suggesting that they anticipate living off their retirement savings for less than 20 years. When asked directly how many years they anticipate living off of their savings in retirement, people say 21 years, on average.

Retirement Confidence High

Although there appears to be room for improvement in how realistically people are planning for their financial needs in retirement, the story isn’t all bad. Thirty-three percent of people feel they are completely prepared for retirement, and another 51 percent feel at least moderately prepared.

Schwab-Pomerantz notes that even people who have a financial plan in place would be well-served to give it a second look to ensure they are on track to meet their retirement goals. “Especially for those looking to catch up on savings, we recommend maximizing contributions in a 401(k) at least up to the employer match, considering other tax-advantaged retirement accounts such as an IRA, and finding ways to automate savings,” she says. “We’re also having retirement planning discussions with an increasing number of clients who want to be more engaged in investing and how their money is managed.”

People’s sense of retirement readiness seems to provide flexibility in terms of whether or not they will continue working to drive additional income once they retire. Thirty-nine percent of people surveyed say they do not plan to work at all in retirement, and 46 percent say they might work part-time even though they expect to have enough money to live without working. Just 10 percent think they will have to work at least part-time to make ends meet.

Budget Busting Worries

When asked how their confidence level has changed since last year, 23 percent feel more optimistic about being prepared for retirement, while 24 percent are less optimistic, and roughly half (52 percent) haven’t changed their perspective. Survey respondents did express some financial worries when it comes to retirement planning. More than half (53 percent) say their primary concern is incurring unexpected expenses in retirement, such as medical or healthcare costs.

“Even with Medicare benefits, a 65-year-old couple could need nearly $400,000 to cover out-of-pocket healthcare costs during retirement, according to research by the Employee Benefit Research Institute*, and it’s widely accepted that those costs could rise significantly in the future,” notes Schwab-Pomerantz. “The bottom line for everyone is that healthcare costs need to be carefully factored into retirement plans.”

Regional highlights from the survey include:

• Nearly half (47 percent) of Los Angeles residents surveyed say they don’t plan to work at all in their retirement years, compared to only 30 percent of Washington DC residents.
• More than half (52 percent) of Philadelphia residents say they’re currently working with a professional advisor on their retirement planning, compared to 40 percent of Bostonians.
• Washington, D.C. residents are most likely to relocate in retirement (36 percent), while San Franciscans are least likely to move once they retire (17 percent).

Retirement Planning Resources at Schwab

Schwab makes a range of services and tools available for investors seeking help with retirement planning, including:

• Schwab Real Life Retirement™ Services for tools and resources focused on retirement planning
• Retirement planning tools on Schwab.com to help people get started or track their progress
• Complimentary retirement consultation available to all clients**
• Complimentary retirement workshops in its more than 300 branches across the country

About the Survey

The Local Market study, conducted for Charles Schwab by Koski Research, polled 1811 investors between the ages of 25 and 80 with a minimum of $250,000 in investable assets and retirement funds and was conducted using an online panel of general investors. The survey was conducted between January 14 and January 25, 2013. Results of any sample are subject to sampling variation. The magnitude of the variation is measurable and is affected by the number of interviews and the level of the percentages expressing the results. The study’s margin of error is +/- 2.2 percent.

About Charles Schwab

The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with more than 300 offices and 8.8 million active brokerage accounts, 1.6 million corporate retirement plan participants, 874,000 banking accounts, and $2.01 trillion in client assets as of January 31, 2013. The Company was ranked ‘Highest in Investor Satisfaction With Self-Directed Services’ in the 2012 US Self-Directed Investor Satisfaction Study^SM from J.D. Power and Associates. Through its operating subsidiaries, the Company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; compliance and trade monitoring solutions; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products. More information is available at www.schwab.com and www.aboutschwab.com. (0313-1869)

Follow us on Twitter: @charlesschwab
Read our blog: Schwab Talk

*2012 EBRI Report: www.financial-planning.com/news/Health-Care-May-Cost-Nearly-400000-for-Retired-Couple-2681848-1.html

**The consultation is complimentary although the implementation of any recommendations made during the consultation may result in trade commissions or other fees, charges, or expenses. During the consultation, specific advice and recommendations are limited to assets held at Schwab by clients with an existing Schwab retail brokerage account. Examples may be provided of the advice and recommendations that might be offered if outside assets were transferred to Schwab, however such information is for educational purposes only.