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Affluent Americans May Be Underestimating Their Needs In Retirement Says New Schwab Survey

Despite a general sense of confidence in their financial readiness for retirement, affluent Americans might be overlooking critical tenets of retirement planning, according to a new Schwab survey of approximately 1,800 investors across nine major U.S. markets. More than eight in 10 (84 percent) investors say they have a retirement plan in place, and 80 percent of these respondents say they are confident about their financial readiness for retirement.

However, when it comes to estimating how much money they’ll need once they actually retire, respondents say they’ll need on average around $66,000 in income annually, far lower than their current average income that is approximately $115,000.

“Everyone’s retirement saving and investing plan is going to be unique, but each plan needs to start with a realistic assessment of personal situation and goals,” says Carrie Schwab-Pomerantz, Charles Schwab & Co., Inc. senior vice president, CFP®. “In many cases, we tell clients to assume they’ll need roughly the same annual income in retirement as they had beforehand unless they anticipate a significant lifestyle change, and to take into account longevity risk when planning how much money they might need.”

The survey also finds that, on average, respondents plan to work until they are 67 years old and expect to live to the age of 86, suggesting that they anticipate living off their retirement savings for less than 20 years. When asked directly how many years they anticipate living off of their savings in retirement, people say 21 years, on average.

Retirement Confidence High

Although there appears to be room for improvement in how realistically people are planning for their financial needs in retirement, the story isn’t all bad. Thirty-three percent of people feel they are completely prepared for retirement, and another 51 percent feel at least moderately prepared.

Schwab-Pomerantz notes that even people who have a financial plan in place would be well-served to give it a second look to ensure they are on track to meet their retirement goals. “Especially for those looking to catch up on savings, we recommend maximizing contributions in a 401(k) at least up to the employer match, considering other tax-advantaged retirement accounts such as an IRA, and finding ways to automate savings,” she says. “We’re also having retirement planning discussions with an increasing number of clients who want to be more engaged in investing and how their money is managed.”

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