Despite facing “golden years” that could last two decades or longer, more than a quarter 28% of retirees surveyed in Wachovia’s fourth annual Retirement Survey report withdrawing 10% or more of their retirement savings annually to pay for expenses.
People who report this withdrawal rate have an average of $375,000 in savings. Only 38% say they withdraw “5% or less” of their savings. About half 47% say they have a written withdrawal strategy, and only 28% report having a written budget for spending their savings.
“When you retire, you have to make your savings last until the end of your life, and the way to do this is to create a proactive plan for the money you’ve earned. You can’t spend as large a chunk of your savings annually as we’re seeing in this data,” says Lynne Ford, director of Wachovia’s Retail Retirement Group.
Richard Day Research (RDR) of Evanston, Ill., conducted 2,100 online interviews for Wachovia with respondents between the ages of 55 and 70 and with household assets of $75,000 or more, excluding the value of real estate holdings.
The study also found that the majority of respondents report taking Social Security at age 62. Another 17% report taking Social Security benefits at age 65. Only 9% report delaying Social Security benefits past the age of 65.
When asked to identify their “greatest concerns” in retirement, respondents cited deteriorating health, unexpected illness and the rising cost of healthcare as the top three.
In spite of little planning, 84% of the retirees surveyed characterise themselves as “not distressed” in relation to managing their finances in retirement. Among younger retireesthose between the ages of 55 and 59 with less than $250,000 in assets75 percent describe themselves as “not distressed.”
“Many things conspire to make recent retirees content with their financial prospects for their ‘golden years’. There is a general human tendency to discount the future and focus on the here and now, especially if the future may involve physical decline or isolation. As people age, they become very good at looking on the bright side and derive satisfaction with what comes one’s way. Unfortunately, the early retirement years often are a time for unwarranted and potentially deleterious optimism,” says Thomas Gilovich, chairperson of the Psychology Department, Cornell University.
Gilovich is the author of the book ‘Why Smart People Make Big Money Mistakes’. He reviewed the results of the study but is neither a sponsor of the study nor is affiliated with Wachovia.
The potential to outspend retirement savings does not appear to worry respondents, as 91% say they feel “confident” or “very confident” that they have enough savings to last in retirement. A slight majority, 52%, say life in retirement is “better than expected” and 37% say it is about “as expected.”
When respondents were asked whether “saving for retirement or managing retirement savings” was more difficult, 61% said saving for retirement and 39% said managing their retirement savings.
The study compared the “emotional barriers” reported by those in retirement and those in pre-retirement and found significant differences.
-Emotion-
-Feel hopeful (often)
-Feel confident (often)
-Feel worried
-Worry about investing mistakes
-Frightened to entrust savings in stock market
-Feel “very confident” will have enough money
-Non-retired-
-31%
-29%
-50%
-43%
-46%
-16%
-Retired-
-48%
-55%
-31%
-28%
-42%
-40%