Despite Anemic Returns, Optimism About Retirement Goals
March 16, 2010
According to a poll conducted by MoneyRates.com and GetRichSlowly.org, a surprising number of respondents plan on an early retirement. This shows a combination of optimism and willpower, since today's retirement savers have some significant obstacles to overcome.
On both sites, visitors were asked, "At what age do you plan to retire?"
- Before 54
- 55 - 59
- 60 - 64
- 65 - 69
- After 70
Out of more than 2,500 responses, the most common answers were the first three categories, with 22% of the total in each. This means that 66% of the poll's respondents plan to retire before the official retirement age of 65, with 44% planning to retire before the age of 60.
If they do retire as planned, these folks would certainly be ahead of the curve. The US Bureau of Labor Statistics has estimated that, on average, Americans retire between ages 62 and 63. Moreover, partial Social Security benefits aren't available until age 62, and most people aren't eligible for full benefits until their late 60s--so retiring before those benefits kick in requires drawing upon personal retirement savings.
Saving for Early Retirement
To pull off an early retirement, today's savers have to overcome an imposing array of challenges:
- Low bank rates. Saving for retirement isn't just about saving. Putting aside some money gets the ball rolling, but compound interest plays a big role in building the value of those savings. With bank rates below 1%, compounding will not have as big an impact, so the burden falls more on household savings rates to reach retirement goals.
- A decade of poor stock returns. Retirement savings aren't just in savings accounts or money market accounts--a part of the compound returns on savings is supposed to come from stocks, bonds, and similar investments. During the high-return years of the late 1990s, retirement planners became increasingly dependent upon investments to do the heavy lifting in building up a nest egg. Since then, they have been sorely disappointed. To much fanfare, the Dow Jones Industrial Average crossed the 10,000 mark back in April 1999. As of March 2010, the Dow was still just over 10,000. For people who had been counting on the stock market to provide 10% yields annually, more than a decade of no progress means they have quite a bit of catching up to do.
- Low savings rates. About a decade ago, household debt burdens broke into unprecedented high territory and continued to rise from there. The recession forced many people to curb their spending habits, so those debt burdens have finally started to ease over the past couple years. Still, savings rates are still not at historically normal levels. Debt is a hole you have to dig out of before you can do any meaningful saving for retirement, and for many, there is still some serious digging to do.
- Time running out. The oldest baby boomers are already reaching retirement age, and for the rest of this bulge in the U.S. population, that age is coming up fast. For baby boomers who have fallen behind in retirement savings, there is little time left to catch up.
Despite all these challenges, the results of the recent poll suggest that many people believe they have their retirement savings firmly under control. Certainly, this reflects a much cheerier view of retirement savings than is generally depicted for the American public. Perhaps the reason is that the poll responses came from MoneyRates.com and GetRichSlowly.org readers, who are actively working to control their financial destinies. There is nothing like having a plan and taking responsibility to increase your chances of success.
