Retirement obstacles often expenses, not assets

By DAVID MOON, Moon Capital Management, LLC
March 18, 2012

Today’s employees are not satisfactorily saving for retirement. They have unrealistic expectations about when they will retire and how much they will earn working part-time jobs during retirement. Most have practically no external savings or investments.

These are only some of the findings of a recent report from the Employee Benefit Research Institute (EBRI) titled “The 2012 Retirement Confidence Survey: Job Insecurity, Debt Weigh on Retirement Confidence, Savings.”

My firm’s work with current and near retirees confirms many of these findings. Some of our experiences expose other risks.

According to the EBRI report, 60 percent of employed workers report that the total value of their household savings and investments is less than $25,000. Thirty percent of workers have less than $1,000 in savings.

Honest and educated people might disagree about how much you need to save in order to safely provide for a comfortable retirement, but for most people the amount is certainly north of $25,000.

Sadly, most people haven’t even bothered to try to determine the amount. The report found that 56 percent of workers have never even tried to calculate how much money they will need to accumulate by the time they retire.

There are a number of excuses individuals may not be financially prepared for retirement. Some reasons are legitimate. A failure to do some math is not.

More workers plan to address the retirement question by working longer. More than 25 percent of today’s workers plan to retire after age 70.

Workers also expect to continue to earn some part-time income in retirement, augmenting their retirement savings and Social Security income.

Retiring at a later age and continuing to work part-time may sound good in theory, but doesn’t always work as well as planned.

While 70 percent of the EBRI survey respondents expect to earn some income during retirement, only 27 percent of current retirees actually do. And despite planning to postpone retirement, 50 percent of retirees report leaving the workforce earlier than projected.

Our clientele is admittedly not representative of the general population, but we do see people with varying degrees of successful financial preparation for retirement. People who come to an investment management firm predictably have investments that need to be managed. That doesn’t mean that they are necessarily without retirement/expense challenges.

The most difficult financial retirement situations we see are, at their core, expense problems – not asset problems. Obviously, if a couple has accumulated less than $25,000 for retirement and they are not capable of completely relying on Social Security, they are likely to have both an expense and an asset problem.

But many couples have significant enough assets to provide for a lifetime of income – just not the amount of income to cover the expenses they are accustom to incurring.

It’s obvious, but the simplest retirement situations are those in which the retirees have zero debt. Debt is the fulcrum of life. It leverages everything – not just the amount of house you can buy or potential profit that you might earn on an investment.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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