Are Workers Responding Rationally To Retirement Worries?

A recent survey by investment firm T. Rowe Price detailed a variety of retirement concerns that workers have today, and their responses to those concerns. It can often be instructive to see what others are thinking about retirement planning -- it's an opportunity to learn from either their examples or their mistakes.

Here are four things revealed by the survey, along with some commentary on whether they reflect rational or irrational approaches to retirement.
  1. Health care costs are the number one concern. Seventy-six percent of respondents are worried about the rising cost of health care, which is a rational concern since health care costs have been rising at an alarming rate for years. More to the point though, people who plan to retire at a normal age should be most concerned about the cost of Medicare, and what it does and doesn't cover. As for people who plan to retire early, the cost and availability of private insurance before they reach the eligibility age for Medicare should be a front-and-center concern.
  2. People worry too much about taxes. Sixty-seven percent of survey respondents cited rising taxes as a retirement concern -- more than were worried about inflation (61 percent) or running out of money (52 percent). This isn't rational. Tax rates will go up and down over time, but they will do far less to erode the value of your wealth than inflation. As for running out of money, this is a real concern because people are living longer than ever, making retirement harder to fund. Of course, if you run out of money, at least you won't have to worry about taxes any more.
  3. The right medicine isn't always pleasant. Regarding what people were doing to address concerns about Social Security, the leading responses were saving more (42 percent) and planning to work longer (29 percent). Those are rational responses, though it's a pity those percentages aren't higher, since these are the most effective courses of action.
  4. Some will always gamble to catch up. Eleven percent said they are investing more aggressively to make up for an anticipated shortfall in Social Security. There are some reasons that justify investing aggressively, from having a long time until retirement to adjusting for low yields on savings accounts and bonds. However, trying to make up for a shortfall in savings by investing more aggressively tends to lead to desperate and irrational decisions.

This survey questioned people aged 21 to 50 with at least one investment account. Perhaps the most heartening takeaway is that so many people in that age group are thinking seriously about retirement savings. Too often, people start thinking about this too late, which is probably the biggest mistake of all. No matter what your approach to retirement saving, there isn't much you can do about it once you are close to the finish line of your career.