02/07/2013 08:00 am ET Updated Feb 07, 2013

Retirement Planning Study Finds Boomers Have Unrealistic Views Of Futures

Many will be surprised by the recent findings in Ameriprise Financial's Retirement Check-In survey. It appears Americans are wearing rose-colored glasses when thinking about their retirement, envisioning golden years that their finances won't be able to provide.

The financial planning firm, with the help of researchers, conducted phone interviews with 1,000 men and women ages 50-70 who were employed, had plans to retire and had investable assets of $100,000 or more. A vast majority of those surveyed -- 78 percent -- said they expected to be "extremely happy in retirement," with 83 percent saying they felt "emotionally ready to retire." Yet "many Americans really are unaware of how much it’s going to cost them to retire," said Suzanna de Baca, Ameriprise Financial's vice president of wealth strategies. "They're not really clear on costs in certain areas."

One of those areas is health care. While more than half (53 percent) of those surveyed said health was their biggest fear (compared to finances, which only 35 percent said was their top concern), 56 percent hadn't done any research into what Medicare covers. Married couples who are less likely to have enough savings to cover medical costs than average are projected to need $365,000 to $454,000 to pay for Medigap, Medicare Part B and D premiums, and out-of-pocket drug expenses, according to the Employee Benefits Research Institute.

When it comes to their finances, boomers surveyed on their retirement planning continued to show a gap between their expectations and reality. Participants said they needed around $1 million ($934,000) for a comfortable retirement -- "Whether that's based on fact or is just a number in their heads is unclear," de Baca said. But their finances aren't even close to that magic number: they've only saved $696,000 in investable assets -- a $250,000 gap between what they say they need and what they actually have. Adding to the expectation gap? Twenty-two percent said they have less than $250,000 squirreled away for their retirement.

"That's a big problem," de Baca said.

What is behind this extreme optimism in the face of, well, facts?

"It’s a different environment now that people haven’t caught up to," de Baca said. "There are very different societal differences now than when a lot of boomers were growing up. Between pensions, social security and personal savings, most people didn’t have to worry about their retirement the same way. Plus they didn’t live as long, so they didn’t have to fund it for as many years.

"Even boomers who are familiar with financial concepts may simply not know the reality of how [long] they’re going to live," de Baca continued. "We have all been aware that people are not prepared for retirement, and that there's a savings gap, but when we see how many other steps people are not taking to prepare for retirement, then it really does start to become fairly alarming."

De Baca offered a few things that people can do to take control of their retirement:

  1. Have a written financial plan.
  2. Know how you're going to cover your finances and expenses in retirement (47 percent said they planned on using their home equity to fund their retirement, even as the country climbs out of record housing value lows). Actually address that savings gap. Whatever the number you determine with your advisor, start stocking money with some discipline so you will have enough.

  3. Have emergency cash on hand.
  4. "Conventional planning in the finance world was that you should have three months of emergency cash on hand," de Baca said. "But with the market changes a lot of people are recommending six months."

  5. Factor inflation into your retirement planning.
  6. Not taking inflation into consideration into your retirement can place you thousands of dollars short of what you really need to retire, and affect your purchasing power.

  7. Manage your retirement portfolio
  8. Take a good, hard look at your portfolio and calculate how much annual income your assets will produce in retirement, de Baca advised.
Survey participants said following these five steps helped make them feel more comfortable about their retirement -- and it is more realistic than dreaming of vacations (72 percent) that you haven't taken steps to afford.


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