More than one-third of baby boomers expect Social Security to be a major source of income in their retirement, yet only one in four have confidence the system will have the money to pay these benefits throughout their retirement, according to the MFS Investing Sentiment Survey.
Nearly 40 percent of those surveyed for this study were not at all confident Social Security would still be around for them to tap into in retirement.
Most investors recognize that personal savings and investments are the most important factors in funding their retirements, but baby boomers, who at the median are only eight years away from retirement, have very little saved for retirement. Only 12 percent of respondents had $1 million or more saved in retirement accounts and the median balance was $314,000.
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"The survey findings point out a big disconnect between what investors say they plan to live on in retirement, and what they actually can count on for that income. Advisors have an opportunity to help their clients focus on solving for this critical shortfall before it's too late," said William Finnegan, senior managing director and head of Global Retail Marketing for MFS.
When asked how they plan to make up for any financial shortfall in retirement, the most popular answer among all investors was to cut back on spending. The second choice among baby boomers was to work part time in retirement, followed by delaying their retirement age. Options for trying to increase the amount of money they have in retirement – including increase the amount saved and take more investment risk – ranked lower among their choices.
Among major concerns cited by investors as to what may impede their ability to retire comfortably, half cited a significant rise in health care costs (10 percent or more). Only a deep recession in the U.S. economy or a substantial cut in Social Security benefits ranked higher among their concerns.
Despite their age, baby boomers were far more likely to have adjusted their lifestyle (63 percent) than to have saved more for emergencies (44 percent).
"While pursuing a healthy lifestyle is laudable, it is far from a risk-free strategy in terms of the health of your retirement," Finnegan said. "People can lose their jobs or suffer catastrophic health issues at any time, regardless of their lifestyle. Unanticipated events like these can obviously put a damper on their ability to control when they retire and their ability to work in retirement, if that had been their plan. When dealing with these issues of financial shortfalls in retirement, it's simply not realistic to say, 'Oh, I plan to work longer,' or 'I plan to stay healthy.'"
MFS, through Research Collaborative, an independent research firm, sponsored an online survey from August 29 to September 10, 2012, of 923 individual US investors with $100,000 or more in household investable (non-retirement) assets and 603 licensed US financial advisors (either FINRA or SEC) who have been licensed for at least three years with $500,000 or more in annual mutual fund sales.
MFS is a global money management firm with investment offices in Boston, Hong Kong, London, Mexico City, São Paulo, Singapore, Sydney, Tokyo and Toronto.
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