[vc_row][vc_column][stm_post_details][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Findings from MassMutual’s 2018 “State of the American Family” illustrates that on average, respondents expect to retire at age 62, as opposed to age 64 when the study was last conducted five years ago in 2013. Surprisingly, 40% of the respondents from the study intend to retire before age 60, up from 32% from that same 2013 study. With all of this optimism, did any of the percentages go down? Well yes, actually. 22% of respondents now expect to retire after age 65, down from 30% from the 2013 study. So there was a decrease in the percentage of folks who expect to retire after age 65 and an increase in the percentage of folks who expect to retire before 65.

Could some of the respondents’ confidence be misguided? The answer is almost certainly yes. In 2018 only 56% of respondents had actually attempted to do the math necessary to calculate how much they need to retire. That is down from the 61% who attempted to do it five years ago. And the percentage of respondents that have developed a plan to retire is basically flat. 35% of the 2018 respondents have developed a plan, compared to 35% in 2013.

Clearly, part of the respondent’s unbridled optimism is tied to the robust stock market of the last few years. The Dow Jones Industrial Average closed at 25,131 on March 1, 2018 compared to 14,054 on March 1, 2013. Unemployment statistics also play a part; the unemployment rate was 3.7% in October of 2018 as compared to 7.2% in October of 2013. But things, as we know, can change quickly. With the recent volatility in the stock market and the slowing down of the global economy, do those folks feel as confident now?

Some parts of the study made little sense to me. Confidence about being ready to retire rose from 45% in 2013 to 47% in 2018. But the percentage of respondents who say they worry about outliving their money also went up. How can more folks feel more confident about retiring and at the same time worry about outliving their retirement nest egg? This is puzzling, to say the least.

At the same time, Nationwide Retirement Institute’s “Retirement Income and Tax Planning Consumer Survey found 60% of future retirees, 70% of recent retirees and 75% of those retired for more than 10 years are either “somewhat knowledgeable” or “not at all knowledgeable” about tax planning in retirement. There was a significant increase in the amount of recent retirees who wished that they would have been better prepared for paying taxes in retirement. A whopping 37% admitted that they never considered the impact that taxes would have on their retirement income. The study noted other areas of confusion among the three groups:

Nearly half of future retirees, recent retirees and those retired for more than 10 years believe that their retirement income is guaranteed for life (no, it’s not).
51% of future retirees were either somewhat knowledgeable or not all knowledgeable on how tax brackets work.
Between a 34% to 41% of all three groups don’t know that required minimum distributions (RMDs) must start at 70 ½.
And between 54% to 74% don’t feel knowledgeable about how capital gains work in retirement.

So let’s see: Americans in MassMutual’s study are now more optimistic than ever about retiring. And a rising percentage of the respondents think that they can retire before age 60. However, most have not made even the most rudimentary attempt at doing any sort of planning, let alone sitting down with a professional to really crunch the numbers. A significant percentage of the folks in the Nationwide survey did not give much (or any) thought to how income taxes might reduce their retirement income and some believed that their retirement income was guaranteed for life.

Major resources are devoted to trying to get 401(k) participants to save more toward retirement. It seems that there is a clear need to help plan participants do a certain amount of distribution planning before and during retirement. That includes educating those approaching retirement about the impact that federal and state income taxes will have on their retirement income, as well as providing information (perhaps a webinar) about things like RMDs, the difference between income taxes and capital gains, etc.

Because as far as I can tell, hope (even high hope) is not a strategy.[/vc_column_text][/vc_column][/vc_row]