If you had an opportunity to see into the future, would you take it?
Retirement is a fascinating topic. One of the most interesting elements about retirement is that it’s a period we think about for years, without knowing what it’s really going to be like. Only AFTER you’ve retired do you know what the actual experience feels like. Until then, it’s a future that you can’t truly experience. That’s where I’m at today; a “near retiree” who’s planning for retirement without really knowing what it will actually be.
Today, we’ll look into the future for those who, like me, are a few years away from retirement. Perhaps we can learn from those already experiencing retirement, as they look back at what their expectations were when they were in our shoes. Perhaps we can revise our assumptions, while we still have time to make a difference.
The basis of this post is this article from Bloomberg, which in turn was based on this piece of research from HSBC. The research is based on surveys of over 18,000 people, in 17 countries, and is the most comprehensive research I’ve read on this topic. If this blog post interests you, I encourage you to also read those root stories on which it is based.A look at the actual experience of retirement, and how it compares to expectations. Click To Tweet
This article looks at the actual experience of retirement (our opportunity to see the future), and how it compares to earlier expectations from the perspective of those who have already made the transition.
Retirement: Reality Vs. Expectations – Key Findings
The HSBC study is fascinating, and worth a detailed read. The Bloomberg article adds some good commentary on the study. This article attempts to combine the best from both, and summarizes both the initial research and the Bloomberg article into one source for your convenience.
As the above chart shows, our reality doesn’t align well with our expectations when it comes to retirement spending. Every category experienced higher spending than expected, with borrowing and financial supporting others being the two areas that should cause you to rethink your retirement spending projections.
Below, in bullet format, are some of the other key findings from the Executive Summary of the report:
- 86% of folks with < 5 years to go view retirement positively, while only 68% of retirees feel the same.
- 64% of folks over 70 are financially supporting others, the highest of any age group.
- Almost 1 in 7, or 14%, of working age people have not started saving for their retirement.
- 12% of people in their 50’s have not yet started saving for retirement.
- 35% of retirees wish they had started saving for retirement at an earlier age.
- 22% of working age people have never received advice and/or information about retirement.
- 42% of people in their 60’s and older expect to move into a retirement home.
How Will You Fund Your Retirement?
The most concerning disjoint between expectation and reality is the expectation of how much money will be earned after retirement. While 36% of pre-retirees expect money earned during retirement to be an income source, the reality is much different. Only 14% of actual retirees report earned income as an actual source of retirement funding. Also, be cautious in assuming an inheritance will buffer your retirement income needs, as far fewer of those who have actually retired report an inheritance compared to expectations before retirement. Another area to be careful in your assumptions is downsizing your home. 54% of pre-retirees expect to move into a smaller home for retirement. While 17% of pre-retirees expect downsizing to help fund retirement, only 10% of retirees report downsizing as an actual source of income in retirement.
Further, as I wrote in Will You Be Forced To Retire Early, 60% of Americans retire earlier than they planned. Be conservative on assuming how much you can earn later in life and how much you’ll inherit, both are risky assumptions. Rather, focus on these 7 Strategies To Make Your Money Last Through Retirement, and plan conservatively.
Priorities Shift After Retirement
As people age, health becomes increasingly important, with 78% of those age 60+ citing it as one of the most important ares in their life. Set a goal to begin an exercise program. Get out and take a walk. Also, having enough money becomes increasingly important as we age, as does being in control of your finances.
Expect your priorities to change in retirement. It’s natural, and should be part of your planning process. Think about things you expect will be important in your future (your health), and take steps now to make them better (exercise).
Approaches To Finances
The HSBC study identifies 5 different approaches to retirement planning. Study them for a minute, and self-classify yourself. Personally, I’m a planner, and categorize myself in the “Strategic Planner” group. This bodes well for my success in retirement, as this group tends to be better positioned to enjoy a confortable retirement. Think about where you are today, and what you can do to better position yourself for a successful retirement.
4 Steps To Consider In Your Retirement Planning
The study concludes with four recommendations to consider in your pre-retirement planning. Having read the study in it’s entirety, I’m comfortable re-publishing their recommendations here. They’re sound recommendations, and I support each of them.
Consider All Of Your Retirement Expenses
While only 20% of pre-retirees expect to have credit card debt after retirement, 40% of actual retirees report credit card debt. Be realistic when making assumptions about your retirement expenses. Consider the areas in this report where retirement assumptions have proven to be different than reality, and adjust your assumptions accordingly. Track your actual expenses for a few months, and use it to build your estimated spending in retirement.
Start Saving Earlier For Retirement
Learn from the 35% of retirees who wish they’d started saving at an earlier age. If you haven’t started saving yet, start saving now. Scour your monthly spending to find areas where you can cut. Automate your savings, as I recently told my daughter to do. If you feel you’re late in getting started, don’t despair. Stop making excuses, and start now. Your “retired self” will thank you.
Make Sure You’re Getting Sound Advice
The fact that you’re reading this blog is a good sign. You’re ahead of the majority of folks planning for retirement, as only 32% of pre-retirees report getting advice from sources including blogs, discussion forums, and other online sources. Don’t rely exclusively on family for advice, and don’t assume someone else will handle your retirement planning. This is too important a topic to leave entirely to others. If you must, hire a financial advisor, but learn enough about the subject before your meeting to insure you can have an educated discussion. If you’re worried about a friend or family member who isn’t taking retirement planning seriously, forward them a copy of this article, in love.
Be Prepared For Financial Ups & Downs
35% of pre-retirees who have saved for retirement report either having to stop at some point, or facing serious difficulties in continuing to save. Insure you’re keeping your major life expenses below your income, and be particularly careful when you buy cars and homes. Keep your retirement savings a high priority throughout your working years, and you’ll be well on your way to….
Achieving A Great Retirement.