Many Americans unrealistic about retirement savings

Monday, March 4, 2002

NEW YORK -- There seems to be a "disconnect" in American thinking when it comes to retirement savings.

Some 70 percent of people say they are confident they'll have enough money to live comfortably in retirement, according to a national survey released Wednesday. But half of workers have saved less than $50,000, and 15 percent say they've saved nothing.

Even among Americans closest to retirement, those ages 40 to 59, just a quarter have saved $100,000 or more, the survey found.

"People really are unrealistic," said Don Blandin, president of the American Savings Education Council. "The fact is, people still aren't planning. They don't understand what retirement is going to cost, and they're not putting enough away."

The 12th annual Retirement Confidence Survey was sponsored by the ASEC, a nonprofit coalition of groups that encourage financial education, and the Employee Benefit Research Institute, which does policy research. Results were revealed on the opening day of the three-day National Summit on Retirement Savings in Washington, D.C.

Blandin said researchers increasingly are looking at the personality traits that divide savers from spenders to find ways to reach the laggards.

The survey divided the public into five groups: "planners" who save and invest; "savers" who put money aside regularly but are risk-averse; "strugglers" who try to save but are often deterred by unexpected events; "impulsives" who are not disciplined savers and are prone to impulse buying; and "deniers" who don't plan or save.

"We feel we need different approaches to the different personality groups," Blandin said.

Many who don't save don't understand that even small amounts put aside regularly can yield big returns because of the benefits of compound interest, he said.

He pointed out, for example, that a person who saves $10 a week for five years in an account earning 5 percent interest, then increases that to $20 a week for the next five years can accumulate nearly $10,000 in a decade. Increase the savings rate to $40 a week for the next 35 years, and the saver will end up with more than $250,000 -- $80,600 invested and more than $170,000 earned in interest.

Christina Caldwell, 28, of Arlington, Va., said that watching her mother struggle amid a divorce prompted her to focus more on her own financial future.

"She had no life insurance, no savings account in her own name, no property," Caldwell said. "So her future is very much dependent on the outcome of the divorce proceedings."

Caldwell, who holds a master's in business administration from Georgetown University, currently is working part-time as a tutor while she looks for a new job in consulting. Once she has that, she has her financial strategy mapped out.

"I've got to pay down credit card debts I accumulated as a student," she said. "Then hopefully I'll start putting money into a 401(k) (retirement) account."

Elaine Bedel, of Indianapolis, president of the Certified Financial Planners board, said the group's latest consumer survey found that the economic downturn has set back the savings plans of a lot of Americans, especially those in their 20s and 30s.

Almost half in this group list debt reduction as a current financial goal, up from 37 percent in the previous survey in 1999, she said.

"We had the tech and dot-com drops, and people in this age group were very likely affected by that," she said. "Many were spending at a certain level, and because of high income and (stock) options they felt they also were saving. After the bubble burst, they perhaps maintained their lifestyle too long, and now they have to look at rebalancing."

Still, she said, the survey indicates that the majority of people -- more than eight out of 10 -- say retirement saving is their top financial goal.

"There is rising awareness that people will need more than Social Security, that the rest will be from money they saved or that they'll have to continue working," she said.

She added that the formulas that worked for today's retirees won't necessarily work for tomorrow's.

"People are healthier, they're living longer and they want to do more. That has its costs," she said.

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