A survey from MoneyRates paints a dire picture for people close to retirement. Over 70% of people within 20 years of retirement haven’t taken any steps to estimate how long their current savings will last. People over retirement age aren’t doing much better: 62% have yet to determine how long their current savings will last them.
The personal finance blog surveyed 1,000 adults, evenly split between two age groups: 45-64 and over-65.
“Looking at what has worked for people who retired early, getting an early start on savings seems to be a key factor,” according to Richard Barrington, MoneyRates’ senior financial analyst. “Those who are still working after reaching age 65 are much less likely to have started saving for retirement in their 20s and 30s than those who were able to retire before age 65.”
People underestimate their retirement needs in several ways, the survey found.
Over half of respondents expect inflation will shave less than 10% off their retirement savings, but MoneyRates estimates inflation could drive up the price of goods by between 21% and 46% over the next 10 years.
“Given that retirement planning generally involves dealing with periods much longer than 10 years, it’s important to recognize that the prices you’ll pay in retirement are likely to be significantly higher than they are now,” according to Barrington.
He added that spending habits can change dramatically in retirement, especially around health care. Health care accounts for over 13% of consumer spending for people over age 65, compared to 8% for younger consumers, according to the Bureau of Labor Statistics.
Over 23% of people over 65 who are still working haven’t even started saving. Nearly 47% of people over 65 and 53% of people in the younger cohort have only saved (or expect to have saved) $100,000 for retirement. That’s very bad news considering a healthy 65-year-old couple may need more than three times that just to cover their health care costs in retirement.
About one in five people under age 65 are retired and 8% call themselves “semi-retired.”
“Someone who makes saving for retirement a priority has a better chance of saving money more consistently,” adds Barrington. “There’s nothing wrong with continuing to work after age 65. But ideally, it should be a choice, not a necessity. The message for younger workers is starting to save now, and learning not to overspend, gives more freedom of choice later on.”