Over 40% of Americans are heading toward retirement 'blind' - with no plan

By Jessica Hall

Nearly half of Americans haven't calculated what they'll need in retirement

Start running the numbers on your retirement plan as early as possible, advisers say.

Americans may be walking into retirement blindfolded.

A total of 42% of Americans have never calculated how much money they'll need in retirement, according to a new report from Evergreen.ai, a financial-planning platform. Even those closer to retirement are dodging the task: One-third of those who expected to retire within the next 15 years have avoided running their retirement numbers, per the report.

"People are busy, and people don't want bad news. They don't want to know if they have a shortfall, they don't want to hear they shouldn't buy that new car or whatnot. It's human nature," said Joseph Spada, a private wealth adviser with Summit Financial in Parsippany, N.J.

Yet at a time when 67% of Americans fear running out of money more than death, according to the Allianz Center for the Future of Retirement, it's important to know your retirement number as early as possible. Many Americans are ill-prepared for retirement, with the median amount that workers have saved for retirement at just $955, according to the National Institute of Retirement Security. That's a small fraction of the $1.2 million that Americans think they'll need to retire comfortably, according to Schroders, an asset-management firm.

"It's the most common fear there is: running out of money. But unless you have a plan, there's a risk you won't have enough," said Christopher Walsh, a senior financial adviser and regional marketing director at Capital Choice Arizona in Phoenix. "Coming up with a plan is mitigating the fear of not knowing. The longer you go without a plan, the bigger the risk is of running out of money or not having enough.

"The more time you give yourself, the more flexibility you have to fix things," Walsh added. "Sitting on the sidelines gives you fewer choices, and often suboptimal choices."

Without knowledge of your retirement number, you could be forced to work longer than you want to, and retiring may be a luxury you can't afford. But needing to work until you die may be risky. Not everyone can choose when they retire, as some are forced to do so sooner than they anticipated because of bad health, caregiving responsibilities or job cuts.

Most retirees - 3 in 5 - reported retiring earlier than age 65, with a median retirement age of 62, according to the Employee Benefit Research Institute. Nearly half of retirees said they retired earlier than planned, EBRI found.

Not knowing your retirement number also puts you at risk of severe lifestyle shock. If you retire without actually having enough money in retirement, you may have to severely cut back on your spending in retirement, especially as people are living longer and retirement can now last decades. Distributing too much money too soon can make the fears of running out of money a reality.

"Finding out at 45 that you're behind gives you time to adjust your savings, investments or retirement expectations. Finding out at 65 leaves you with far fewer options," said Jon Ulin, founder and managing principal at Ulin & Co. Wealth Management in Boca Raton, Fla. "Not knowing your lump-sum retirement-savings number is like driving blind into one of the biggest financial decisions of your life. ... You can't simply wake up in your 50s or 60s, decide you're done working and expect the numbers to work."

Where to begin

Start by listing all of your expenditures and income.

"Find out really what you're spending - it's always more than you think," Spada said. "Find out your essential spending versus your discretionary spending. See what you can cut out and what has to be there."

Some expenses may disappear in retirement, such as a mortgage payment once you pay off your house, or college tuition and other costs associated with raising children. Others expenses may increase, such as the cost of healthcare. A 65-year-old retiring in 2026 can expect to spend an average of $185,500 on healthcare and medical expenses throughout retirement, according to Fidelity Investments. That estimate doesn't include long-term care.

While working with a financial adviser may give you a more nuanced picture of what you need in retirement, there are several retirement calculators online that may do the job sufficiently - so long as the person using the calculator is providing accurate data. There are also some retirement rules of thumb: One estimates needing 80% of your annual income in retirement; another is the 4% rule, which suggests withdrawing that much in the first year of retirement and then adjusting for inflation. These are just suggestions, however; some people spend more while others spend less, and these guidelines are bound to change.

Areas that people often overlook include inflation, healthcare expenses, taxes and market downturns, said Aaron Gaines, founder and president of Gaines Capital Management in Smyrna, Ga.

Next steps

One you've estimated your annual retirement expenses, subtract guaranteed income like Social Security benefits and pensions, and multiply the remaining gap by 25, Gaines said. For example, if you need $40,000 annually from your investments, that suggests a starting target of $1 million.

"One of the biggest mistakes Americans make is approaching retirement without knowing what retirement will actually cost. Your retirement number isn't just about how much you've saved. It's about how much income your savings need to produce for the rest of your life," Gaines said. "The goal isn't necessarily to retire with the most money. It's to retire knowing you won't outlive it."

Even Social Security may not be guaranteed. Social Security benefits may be cut by 26% in 2032 unless Congress acts to shore up the system, according to the Congressional Budget Office. There are proposals that would reform the program and thus potentially alter benefits, such as raising the full retirement age.

Be conservative in your planning, said Robert Persichitte, a financial planner and founder of Delagify Financial in Arvada, Colo. "Regardless of your financial plan or tax planning, living within your means is the most critical skill to retire safely - don't get overconfident," he said.

The important step is just to start - as early as possible.

"If you run your model now and it's bad news, you want to know about it now. There's not much you can do to fix things at 60," Spada said. "Create your own retirement model now, even if you're 15 years out. A lot can go wrong in those 15 years, but it's a starting point."

-Jessica Hall

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10-24-26 1323ET