The Attainment Gap

Weekly Market Commentary 3-27-12
Tim Phillips, CEO – Phillips & Company

We all know we need to save for retirement; the fuzzy part is how much we need to save. Most experts these days will say you need about 70 to 80% of your current income for retirement but this number can vary based on your current lifestyle. Looking at the table below by the Employee Benefit Research Institute (EBRI) you can see more than half of workers (60%) report they and/or their spouses have less than $25,000 in total savings and investments.

total savings and investments reported by workers

Workers are clearly ill prepared to deal with their retirement needs. Of those that have calculated what they will need in retirement over 70% said they would need $250,000+ for retirement (chart below). If only 10% have over $250,000 saved (table above) and 70% say they will need at least that much, then we have a big attainment gap.

amount of savings workers think they need for retirement

To close this gap we need to determine how much we might need in retirement. The easiest and most common way to do this is by utilizing a retirement calculator. With such a big disparity, it is not surprising to us that less than half of workers (42%) have actually tried to calculate how much money they will need to save for a comfortable retirement (chart below).

workers having tried to calculate how much they need

Maybe one reason people don’t do a retirement calculator sooner rather than later is because they believe they have more time until retirement. Half of workers expect to retire when they are 65, however, do to various reasons (health problems, disabilities, company downsizing, family issues, and skill set) most of us will retire earlier than expected. In fact, according the EBRI the median age of actual retirement is 61 compared to the median age of expected retirement of 65 (chart below).

comparison of expected and actual retirement age

That’s 4 less years of income and 4 more years of expenses!

As April 15th rapidly approaches I hope you use this as a reminder to fund your IRA, increase your 401(k) contributions, or simply save a little bit extra this year for your retirement. Don’t wait till tomorrow to do something you know you need to do today. You’ll feel better today, live better tomorrow, and avoid taking unnecessary risks along the way.

If you have questions or comments please let us know as we always appreciate your feedback. You can get in touch with us via Twitter, Facebook, or you can Email us directly.

Tim Phillips, CEO – Phillips & Company

Research supported by:

Adam Gulledge, Associate – Phillips & Company