How Confident Are You in Your Retirement Plan?

Even if you’ve carefully invested for your retirement, you might not be as prepared as you think. According to the 2019 EBRI Retirement Confidence Survey, 67% of American workers feel confident they’ll be able to live comfortably after retirement. However, only 42% of them have done any of the calculations necessary for creating a retirement plan. Still more astonishing, a 2016 report by the U.S. Government Accountability Office (GAO) found that a whopping 48% of U.S. households headed by someone 55 or older have set aside no savings for their retirement. And EBRI’s Retirement Security Projection Model concurs, projecting that more than 40% of U.S. households will run short of money in retirement.

Given this data, the question is less about how confident you are in your plan, and more about how confident you should be. Here are five questions to get you thinking.

1.   How much do you plan to rely on Social Security?

If Social Security figures prominently in your retirement plan, you might want to refigure. According to the Social Security Administration’s 2019 Fact Sheet, the average payout is $1461 per month, or just over $17,500 per year – much less than most retirees need in living expenses and only $5,500 above the poverty line (defined as $12,000).  

Generally, Social Security benefits replace only about 40% of the average worker’s pre-retirement income (even less for higher earners), whereas most retirees find they need closer to 80% of their pre-retirement income to maintain their desired lifestyle. Why? Because many expenses – utilities and groceries, for instance – don’t drop while others – healthcare and leisure activities – increase.

Knowing how to maximize your Social Security benefit  and planning the rest of your savings strategies accordingly can help avoid unexpected shortfalls.

2.   How safe are your retirement investments?

Adjustments in the securities market, such as the 40% decline we saw during 2008, teach us an important lesson: No one’s retirement is truly “safe.” Understanding how your money is invested – including your company’s pension plan – is key to minimizing investment risk. Several other factors can impact your investments, as well:

Inflation risk: Although your retirement income will be “fixed,” inflation’s impact on its spending power may not be. Even a 1% increase in inflation can halve spending power in as little as 18 years.

Provider fees: Most investments come with fees, and if you aren’t familiar with how you’re charged, you could lose thousands of dollars – or more. Fees might include advisory and management fees, transaction fees (for buying/selling stocks), plan fees, and expense ratio fees (mutual funds and exchange-traded funds). Talk with your financial advisor about how to eliminate unnecessary fees.

Interest rates: Fluctuations in interest rates can also affect retirement investments over time. For example, low interest rates prompt many investors to move away from low-yielding bonds and savings accounts and invest more heavily in dividend-paying stocks. And rising interest rates may signal a time to rebalance your investments so that they aren’t as affected by market adjustments.

However, it’s important to note that while mitigating risk is healthy, hamstringing your investments is not. Being overly conservative with your investments can cost you in the long run. Working with an advisor on a long-term strategy – and sticking with it – is usually the best approach.

3.   Does your retirement plan include how you’ll cover healthcare costs?

The EBRI confidence survey found that 80% of retirees and 59% of workers feel confident they’ll have enough money to cover medical expenses during retirement. Additionally, 59% of retirees and 52% of workers include the ability to cover long-term care costs in their confidence ratings.

However, a 2016 report, The Current State of Retirement, compiled by Transamerica, found that only 23% of retirees have factored long-term care insurance into their plans, even though long-term care needs were reported as one of their greatest concerns. The IRI Update on Retirement Preparedness reports that most of those they surveyed (who did not include long-term care needs in their planning) erroneously believe they’ll be able to rely on Medicare for both their healthcare (70%) and their long-term care needs (50%). Still worse: 63% said they were unsure of the costs or didn’t know how to save for their health care, and 43% echoed this for their long-term care needs.

While Medicare covers many outpatient services and helps defray the costs of prescription drugs, some catastrophic care and many long-term care expenses exceed Medicare benefits – or aren’t covered by it at all.

Learn more about Medigap insurance .

4.   How well are you managing your debt?

Our country’s general comfort with debt may work against you in retirement. According to the EBRI confidence survey only 25% of current retirees are concerned about debt, Money reports that people aged 65 and older carry between $35,000 and $66,000 in debt. TransAmerica’s Current State of Retirement study further finds that among retirees aged 65-69, an alarming 31% say that paying off credit card or consumer debt is a financial priority, while 24% of retirees older than 70 say the same.

Worse still: People aged 45-54 report the highest levels of debt overall, nearing $135,000, while people aged 55-64 report debts totaling just over $108,000. In fact, 7 in 10 workers say that debt negatively impacts their ability to save for retirement in general, while 51% say it impacts their ability to contribute specifically to their employer’s retirement plan. So, if you haven’t yet calculated your debt into your retirement living expenses, you should seriously consider doing so.

5.   Is continuing to work really an option?

In an interview with Barron’s, Teresa Ghilarducci boldly suggests that many people who plan to work at their jobs well into retirement “know they don’t have enough money, and so they engage in [a] kind of fantasy” about staying with their current employers until they die.

Numbers vary across studies, but the EBRI confidence survey reports that 80% of today’s workers expect to continue working for pay after retirement, while only 28% of surveyed retirees actually do. In fact, more than 40% of the retirees surveyed reported retiring earlier than they expected. The EBRI data points to health or disability and “changes within their organization” as the primary reasons for this. Ghilarducci’s own research offers two starker variables: an inability to keep up (cognitively, physically, or technologically) and age discrimination. When she and her researchers dug below the surface, they found that many workers who retired earlier than planned were pushed out or laid off.

Even if working in your current job after reaching retirement age isn’t an option, it doesn’t mean you can’t work in a job after retirement. Encore careers  are becoming more common, and many retirees are embracing the gig economy to earn money, using skills they already have in a consultative role or learning new ones unrelated to their previous careers.

If after considering these five questions you’re feeling less confident in your existing plan, you might benefit from talking with a retirement planning advisor  to ensure you’ve closed loopholes, such as these, that could become major issues over time.

The views expressed by the author are not necessarily those of Fifth Third Bank and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever. Deposit and credit products provided by Fifth Third Bank.