Tough retirement lies ahead for many workers, poll suggests

NEW YORK, April 4, 2006 — Many Americans are headed for tough retirement years and may not be able to maintain their current standard of living, suggests a new poll conducted by Harris Interactive for the American Institute of CPAs.

“A distressing gap exists between the public’s expectations for retirement and the reality," said Carl George, CPA, chair of the AICPA’s National CPA Financial Literacy Commission and CEO of Clifton Gunderson LLP. "Moreover, too many Americans think they can rely on the Social Security and pension safety net to carry them through. The fact is, Americans must realize they have to take responsibility today for planning and saving for their retirement. Otherwise, they may find themselves working far longer than they anticipated or at a lower standard of living.”

According to the poll, almost half of Americans — 46 percent — expect to fund their retirement through Social Security and pensions, and an equal number expect that their retirement funds will last them 10 to 20 years. Nearly one in four Americans, or 23 percent, has not yet begun to save for retirement. Although almost half of Americans — 47 percent — indicate they have started saving, they also admit they have a long way to go. Forty-three percent of individuals under the age of 35 are less likely to have begun saving.

“This is where the gap between perception and reality is most alarming for consumers,” said George. “If you plan for only 10 years, it’s likely you will outlive your savings. The fact is, Americans are living longer and they should actually plan for 20 to 30 years, not 10 to 20.”

Americans are also underestimating how much they will need to fund their retirement years. More than a third of survey respondents, 39 percent, believe as little as $500,000 will be sufficient to see them through their retirement. But George noted that when spread out over the course of 30 years, that amount becomes $16,000 a year and would have to take into account uninsured medical costs and other expenses, such as the possibility of assisted living.

Basic steps

The AICPA’s 360 Degrees of Financial Literacy program has set up a consumer Web site, www.360FinancialLiteracy.org, with hundreds of free tools and resources to help educate consumers about personal finance matters, including retirement. The basic retirement planning steps recommended on the site include the following:

Set goals and establish priorities. Consumers may not be able to achieve every financial goal they may have, so it is critical that they decide which are most important and why they matter. The most important ally in reaching goals is time. Money deposited in savings accounts will grow and compound. The more time consumers have, the more chances for success.
Build a nest egg — start saving. When consumers calculate how much money they will need, their next goal is to save that amount. Map out a savings plan that works. Assume a conservative rate of return and determine approximately how much must be saved every year between now and retirement to reach the goal. It is never too early to get started.
Understand investment options — use the right savings tools. Consumers need to understand the types of investments that are available and decide which are right for them. If they do not have the time, energy or inclination to do it themselves, they should think about hiring a professional financial planner or advisor. A qualified financial planner will explain the options that are appropriate for their goals, risk tolerance and time horizon.

Harris Interactive surveyed 1,000 U.S. adults during March 2006 under the aegis of the AICPA 360 Degrees of Financial Literacy campaign.

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