"Retirement Planning? What's That?" Asks Americans

Baby boomers may not only be less healthy than their parents, but recent research says many could end up worse off in retirement as well.

A new Employee Benefit Research Institute survey finds that almost half of today's workers have less than $25k in savings and investments.

Older workers -- who should have saved the most -- are not in much better shape. University of Michigan researchers found in a separate study that the first Baby Boomers -- born 1946-1953 -- had an average of $151k in net worth (abstract, pdf). But if $69k in home equity and the value of their businesses was excluded, they had only saved $48k over their working lives.

The situation was far worse for the 25th and 10th percentiles, who have saved essentially nothing over a lifetime.

Overall, these early Boomers, who are now close to retirement age, had about 1/3 of their wealth in the form of home equity -- more than previous generations. Numerous pundits believe that when the large Boomer generation sells its housing stock to the relatively small post-Boomer generations, the large supply relative to demand will drive down housing prices.

The Michigan researchers found that a drop from 2004 housing prices to 2002 levels would wipe out 10% of the average household's net worth.

In many ways, workers haven't adjusted to the end of lifetime employment with comfortable pensions at the end.

The Employee Benefit Research Institute survey found that "Many workers are counting on employer-provided benefits in retirement that are increasingly unavailable."

That includes relying on benefits that simply do not exist: "Only 41 percent of workers indicate they or their spouse currently have a defined benefit pension plan, yet 62 percent say they are expecting to receive income from such a plan in retirement."

To make matters worse, many had unrealistically low estimates for the amount of savings they would need for retirement. And only about 42% had even tried to estimate that amount.

Not surprisingly, the Michigan researchers found that people who consider financial plans were twice as wealthy as non-planners, and that planning seemed to cause wealth -- and not the other way around.

The message in the two studies is clear -- many could be headed for "golden years" far worse than they expect. They need to make realistic assessments of how much savings they will need in retirement, and how they will get there.

---
H/t: The Boomer Chronicles on the Retirement Confidence Survey