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Are Americans overly confident about retirement?

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Americans think they're prepared for retirement, but are they right?

Americans are more optimistic than they've been in years about life in retirement. Yet one question remains: Will they have enough money?

According to a new study by the Employee Benefit Research Institute, confidence among U.S. workers has rebounded to pre-recession levels, with 67% saying they are very or somewhat confident they'll be able to live comfortably throughout retirement. And, among those already out of the workforce, 82% are confident they will have enough money to live comfortably in retirement, up sharply from 75% a year ago.

"As the economy and current financial situation for workers and retirees improves, so does confidence," said Craig Copeland, EBRI senior research associate.

Yet workers' confidence about retirement living may be unrealistic, given the low share of those who have actually run the numbers on how much money they will need in those years.

Only 42% have done those retirement calculations, the EBRI report found. And fewer than 1 in 3 workers has tried to calculate how much money is needed for medical expenses in retirement. A 65-year-old couple retiring this year could spend $285,000 out of pocket on medical costs through their lifetimes, according to Fidelity Investments.

Researchers for EBRI's 2019 Retirement Confidence Survey — the longest-running study of its kind, now in its 29th year — say the discrepancy between retirement confidence and preparation is not new.

"We did see those types of discrepancies between confidence and retirement needs calculations before 2008," Copeland said. "There is a disconnect."

Some financial advisors say that disconnect is due in part to workers' decisions about what to do with their money today, as well as a lack of planning about future finances.

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For many workers, "it's emotional," said certified financial planner Ivory Johnson, founder of Delancey Wealth Management in Washington. "They're buying things based on their current lifestyle.

"They made a decision to prioritize their current lifestyle over the retirement lifestyle," he said.

That may explain why another study, released by Fidelity Investments, about Americans' "retirement mindset" finds that while 62% are confident about their current financial health, a majority lacks confidence in their retirement future. Only 18% of Americans have created a comprehensive written plan for their retirement, according to the Fidelity report, which also found those who don't have a plan said they've have never thought about it, don't know where to begin or feel that they are too far behind for it to make a difference.

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"It's a little bit of denial," said Liz Miller, a certified financial planner and founder of Summit Place Financial Advisors in Summit, New Jersey. "We have so many retirement calculators on the internet and resources trying to help people with their 'rules of thumb,'" she said. "People feel they are so far behind, the solutions are beyond their reach and they'd rather not face it."

It is true many workers will have a lot of catching up to live as well (or better) in retirement given their current savings. Forty percent of workers in the EBRI study report that the total value of their household savings and investments, excluding the value of their primary home and any workplace savings plans, is less than $25,000. This includes 19% who say they have less than $1,000 in savings.

As the economy and current financial situation for workers and retirees improves, so does confidence.
Craig Copeland
senior research associate at EBRI

Yet when it comes to admitting how much money they think they will need to have in their nest egg, most workers believe they'll need six-figures in retirement savings — and 34% say they (and their spouse) will need to top the million-dollar mark to live comfortably in those years, according to the EBRI report.

Even that seven-figure sum may not be enough money for some retirees, Miller says. "We want people planning for 40 years plus to be in retirement — and $1 million doesn't go very far," she said. "If you have a married coupled today, the odds are very high that at least one will make it to 100 years old."

Still, Miller says, workers should not be discouraged. When it comes to saving, "start small and slowly start to step it up," she said. "Anything you can do today is better than nothing."