Nearly half of Americans fear not being able to afford retirement

Many Americans are uncertain about their preparedness for retirement—and they’re worried about it.

Nearly half of non-retired adults (49%) in the U.S. say they’re not certain they’ll be financially prepared to retire when the time comes, according to results from a new AICPA survey conducted by Harris Poll.

In addition to being unclear about their financial preparedness, two of every five non-retired respondents (42%) said their lack of confidence in their ability to retire was causing them anxiety. Twenty-nine percent described themselves as somewhat anxious, while 14% said they were very anxious.

The telephone survey of 1,018 people was conducted in March. It found that just 46% of non-retired adults were confident they’d reach their retirement savings goals. Just a small segment—5%— reported they had already achieved those financial milestones.

The poll was conducted in support of National Financial Capability Month, a nationwide effort to empower and educate Americans to make informed financial decisions, including saving money so they can retire one day.

Of those respondents who were anxious about their retirement finances, many said they were worried about economic factors they could not control, including health care costs (cited by 71%), health care uncertainty (68%), uncertainty about Social Security (62%), and uncertainty about tax rates (52%). The difficulty of retirement planning in general was a cause of anxiety for 54% of respondents, while 70% said they were anxious about determining how much money they would need.

“Saving for retirement is a marathon, not a sprint. By establishing a monthly budget and starting to build up savings early on, Americans will find themselves in a much better position later on,” Greg Anton, CPA, CGMA, chair of the AICPA’s National CPA Financial Literacy Commission, said in a press release. “The most important thing people can do in any financial environment is focus on what they can control and understand the role that their actions play in their retirement plan.”

Planning can also help ease consumers’ anxiety about retirement, said Kelly Ward, CPA, CGMA, principal of Robinson & Ward, PC, and a member of the National CPA Financial Literacy Commission. “It is never too early to get a handle on one’s personal finances,” she said. One way to start, she said, is by compiling a list of assets.

Ward also suggested that consumers track their spending habits and minimize the amount they borrow. “Keeping debt to a minimum, and avoiding credit cards, loans, or other borrowing can all help to decrease the anxiety of retirement by allowing more cash flow for savings and building a retirement nest egg,” she said.  

The changing face of retirement

The “three-legged stool” of retirement income (Social Security, a pension, and personal savings) has changed in recent years, Anton said, as evidenced by survey responses from those who had already retired as compared to those who were still working.

When asked to name their top two sources of retirement income, retirees reported Social Security (61%), pension plans (36%), and savings accounts (25%).

But survey respondents who are not retired indicated they would rely less on Social Security (48%) and pensions (17%) as their top two sources of income in retirement. Their anticipated reliance on personal savings (39%) was notably higher than that of respondents who were already retired.

This reflects the move by a substantial number of employers away from offering traditional defined-benefit pension plans to their employees. Many employers have replaced their pension offerings with defined-contribution arrangements, such as 401(k) plans. These moves have generally resulted in cost savings for employers, but employees many times do not save enough to replace the retirement income they might have received under a typical defined-benefit pension.

Non-retired Americans (92%) were more likely than current retirees (72%) to say they’d be making at least one financial sacrifice in retirement, such as moving to a cheaper city or town, working part time, or even skimping on medical care to balance their expenses, suggesting that the concept of retirement continues to shift. In fact, 31% of non-retired respondents also said they anticipate bearing some financial responsibility for aging parents, compared to only 8% of those currently retired.

The National CPA Financial Literacy Commission offered several tips for planning for retirement.

• A 401(k) plan can be one way to boost personal savings for a secure retirement. Funds are invested directly from your paycheck, before they’re subject to any taxes. Taxes won’t be assessed until the account holder withdraws the funds. In many cases, employers will match a certain percentage of your contributions. Consumers can find more information on 401(k) plans on the 360 Degrees of Financial Literacy website created by the AICPA.
• A Roth IRA is another savings tool, but one which requires taxes to be paid upfront. This option is a good choice for individuals who plan on being in a higher income bracket when it’s time to retire, because distributions are generally tax-free. The 360 Degrees of Financial Literacy website has a special section about IRAs.
• Minimize debt. Finance charges on loans and credit cards add up to real cash that could be invested. For more information on managing cash and debt, visit Feed the Pig, a financial literacy website created by the AICPA and the Ad Council.

—Samiha Khanna is a freelance writer based in Durham, N.C. To comment on this article, email editorial director Ken Tysiac.