Biggest Retirement Mistake

Americans approaching Retirement remain mistaken about key aspects of retirement. Becauase of this, they risk going into their nonworking years with inadequate resources. Retirement could be full of surprises for a number of Baby Boomers.

An annual survey by the Employee Benefits Research Institute shows many Americans are confident about their retirement years. In the latest survey, almost a quarter said they were very confident of being able to live comfortably in retirement, while 44% were somewhat confident about their retirement prospects. This is consistent with other surveys.

Yet, when Americans are asked about more concrete aspects of retirement, their confidence seems misplaced.

In the same survey, many respondents indicate that they have no idea how much retirement will cost and how much they need to save. Also, on average they report having saved about $25,000 for retirement.

About half of respondents believe they will live comfortably on 70% of their pre-retirement income. In fact, many people spend an amount equal to their pre-retirement income or more, at least in the first phase of retirement. The EBRI says people should plan on spending 85% of pre-retirement income in retirement.

The EBRI survey also revealed that many respondents expect to receive a company pension in retirement, but only 40% of working couples are covered by such plans. In addition, many plans are being phased out, frozen, or eliminated. A number of those who currently are covered by the plans will not have those plans available to them through retirement.

Many also are underestimating medical expenses. A survey by Fidelity estimated the average retiree will spend about $200,000 on retirement medical care. But this survey underestimates the length of retirement and overlooks key expenses such as long term care.

In past surveys, retirees said their biggest mistake was underestimating the cost of retirement. The next group of retirees could be making the same mistake.