A significant portion of the population in the United States is now anticipating a retirement period of nearly 40 years, with approximately 1 in 8 employees intending to retire before reaching the age of 61. Interestingly, most workers express a desire to live until they are 100 years old.
This ambitious goal implies that some individuals are aiming for a retirement that spans four decades, presenting significant challenges. One of the main concerns is how to finance such an extended retirement period, especially considering that many workers have not yet achieved their savings targets.
The results, extracted from a recent survey conducted by Corebridge Financial, shed light on the disparity between Americans' optimistic aspirations for their retirement years and the financial challenges they may face. According to NerdWallet, the median retirement savings balance for individuals aged 55 to 64, who are nearing retirement age, stands at $185,000.
"Living until 100 is a lengthy and fulfilling journey, and it is encouraging to witness such optimism," remarked Bryan Pinsky, the president of individual retirement at Corebridge Financial, in an interview with CBS MoneyWatch. "However, this optimism and hope are accompanied by some apprehension, as only 27% of individuals are very or extremely confident that their retirement savings will be sufficient to last a lifetime."
In fact, the survey, which polled about 2,300 adults, found that only about 4 in 10 respondents believe their savings will last 20 years in retirement, suggesting that while more Americans want a three- or four-decade retirement, few expect they'll have funds that will stretch that long.
The rule of thumb for retirement savings is to draw down 4% of one's retirement assets each year. That means someone with $185,000 saved in a 401(k) will have annual income of $7,400 from their savings — hardly a big cushion, especially if one needs extra medical care or assisted living in old age.
Even more troubling are the 3 in 10 Americans over 59 years old who don't have a penny saved for retirement. Those workers are likely to spend decades in old age surviving solely on Social Security, a plan that's geared to replace only a portion of one's working income. The typical retiree on Social Security receives $22,800 annually from the program — above the poverty line, but hardly enough to fund a cushy retirement.
Only about 10% of Americans between the ages of 62 and 70 are both retired and financially stable, Teresa Ghilarducci, a professor at The New School for Social Research in New York and a retirement expert, recently told CBS MoneyWatch. Increasingly, her research has found, many seniors need to return to work to earn extra money despite being "retired."
The realities of longevity risk
Longevity risk is a cornerstone of retirement planning that few Americans understand, Stanford University expert Annamaria Lusardi told CBS MoneyWatch last year. This issue involves understanding how long you're likely to live once you hit retirement age, with many Americans underestimating this figure — and therefore failing to sock away enough money to support themselves.
On the other hand, workers who believe they'll live until 100 might be motivated to stash away more money for their retirement years.
Interestingly, Gen Z, the youngest generation in the workforce, is also the most optimistic about reaching their centennial anniversaries, with about 63% saying they want to reach the milestone. That's about 10 percentage points higher than baby boomers or Gen X.
That could explain why Gen Z is taking retirement more seriously than older generations did at their age. About 3 in 10 Gen Zers (who are between 11 to 26 years old) currently have a 401(k) or IRA, compared with 1 in 10 Gen Xers when they were the same age in 1989, according to a recent study from the Investment Company Institute.
How to fund a 40-year retirement
Asked how to fund a retirement that can stretch almost 40 years, Pinsky noted that it's important for workers to start saving. And he encouraged workers to visit a financial planner or expert who can help them devise a retirement plan.
"What is most important is recognizing whatever your retirement plan is, you need to revisit it on a regular basis," he added.
That's sound advice for individuals with access to employer-sponsored retirement plans, but experts like Ghilarducci emphasize that the U.S. retirement system is failing numerous Americans. Many workers, particularly gig workers, low-wage employees, or unpaid caretakers, lack access to 401(k)s and other employer-sponsored matches.
Starting to save early is crucial due to the impact of compound interest. However, many young workers are burdened by student loans and the high cost of living, making it challenging for them to set aside funds.
Despite this, millions of workers still retire annually, even without the $1.8 million that Americans believe is necessary for a comfortable retirement. Nevertheless, retirement is increasingly becoming a privilege of the wealthy. Research by Ghilarducci reveals that low-income workers typically spend around 12 years in retirement, whereas the affluent spend roughly 20 years in retirement.
