What the gap between retirement expectations and reality tells us

How much money Americans think they need for retirement and how much retirees think they can afford to lose are miles apart.

For many people still working, the future looks bleak. But look at retirees and it turns out that things aren’t so bad. Several recent reports illustrate this duality.

Let’s start with the people who are nearing retirement and are worried.

Americans with employer-provided retirement plans estimate they need $1.2 million to retire comfortably, according to a survey by asset manager Schroders. Nearly half expect to have less than $500,000.

Another survey found that only 1 in 5 middle-class people are very confident that they will be able to retire fully or continue to live comfortably in retirement.

So the panic surrounding retirement is real.

After Retirement? Eight in 10 retirees ages 65 to 80 say they have enough money to live comfortably, a new Gallup poll finds.

“It’s a question of the unknown,” Craig Copeland, director of Wealth Benefits Research at EBRI, told Yahoo Finance. “People don’t know what to expect, don’t know how much they have, don’t know how they’re going to live. When they actually get to retirement, they adjust.”

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Pension concerns are ‘scary’

About a quarter of non-retired people say not having a steady salary is “terrifying”, Schroders found.

“The transition from building up retirement savings to decumulation is not easy,” Deb Boyden, head of Schroders’ U.S. defined contribution division, told Yahoo Finance.

When workers were asked how much monthly income they would need to live comfortably, they reported an average of $4,947. That’s higher than the $4,258 that retirees now say they need per month to live comfortably.

Meanwhile, these worried pre-retirees plan to start their Social Security benefits before age 67, the full retirement age for anyone born in 1960 or later. Only 1 in 10 plans to wait until at least 70, the age at which you’ll reach your maximum monthly benefit for the rest of your life.

It’s not that they’re unaware of the benefits of delaying their checks. It’s just that they don’t care for these reasons: They need the money and want it as soon as possible, and they’re afraid that Social Security will be destroyed.

“Americans are paying a high price for taking their Social Security benefits early,” Boyden said. “The money generated by Social Security is the most reliable source of income for many retirees, and yet few are maximizing these benefits.”

Because so many Americans don’t have retirement savings, waiting to receive their Social Security benefits can have a significant impact on their quality of life after they stop working, she said.

The story continues

Read more: What is the retirement age for Social Security, 401(k) and IRA withdrawals?

Many retirees have enough money to live comfortably

The gap between reality and expectations about retirement has been consistent throughout the 23 years that Gallup has been tracking opinions about retirement through surveys.

“This generally positive view of retirement contrasts with more negative expectations among those who have not yet retired,” said the report’s authors, Frank Newport and Jeffrey M. Jones.

There are many reasons for better outcomes in retirement. Cost of living can be much less of a burden due to lower healthcare bills thanks to Medicare enrollment, or cheaper housing costs if you downsize or move to a more affordable part of the country.

In this year’s survey from the Employee Benefit Research Institute (EBRI) and Greenwald Research, nearly 4 in 5 retirees agree that they are able to spend their money however they want. An even larger number believe they are living the retirement life they envisioned.

According to Copeland, retirees are not only good at managing their current spending, but more than half say they are still saving for the future.

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There are a number of important contributing factors. Namely, planning ahead.

People who have thought about when they would draw on Social Security and how that would affect the amount of their benefits, who have estimated how much income they will need, who have planned for an emergency and who have considered how many years they want to be retired have an advantage, the EBRI study found.

“They’ve faced the big, scary questions and figured out they’re not that bad off,” Justin Samples, a wealth advisor at Ameriprise Financial, told Yahoo Finance.

Many retirees are also better prepared than they realize, Samples said.

“For most people, understanding what it takes to finance their current lifestyle is the first step in getting a realistic picture of what they will need in the future.”

Periodic reviews and reallocation of asset allocations can keep you on track when markets are volatile. Finally, seeking advice from a professional can take away the anxiety that comes with preparing for retirement. It certainly did for me.

“It’s also important to note that many retirees have experienced multiple once-in-a-lifetime events in this century alone,” Samples said. “If you’ve lived through a global financial crisis and a global pandemic as a retiree and still managed to get by, you’re probably pretty optimistic about your ability to navigate the future.”

Read more: Retirement Planning: A Step-by-Step Guide

Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including “Staying in Control at 50+: How to Succeed in the New World of Work and “Never too old to get rich.” Follow her on X @kerryhannon.

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