Only Half Of Americans Save Enough For Retirement, Study Finds

November 30, 1998

COLUMBUS, Ohio -- About half of Americans won't be able to keep up their standard of living after retirement because they aren't planning well enough, according to a new Ohio State University study.

The study examined the spending habits, savings and investments, and planned retirement dates of 1,387 households that took part in the 1995 Survey of Consumer Finances. The survey is conducted every three years by the Federal Reserve and the U.S. Department of the Treasury.

The study found that 48 percent of Americans would not be financially prepared to spend as much after retirement as they did before.

In their analysis, the researchers used only those respondents who were between the ages of 35 and 70, worked full-time, indicated when they planned to retire, and had non-investment income above the poverty level.

The researchers found that respondents' current level of spending, not including money going to savings and investments, and the age they plan to retire had the most effect on whether or not they could keep up their standard of living after retirement.

The study was published in a recent issue of the journal Financial Counseling and Planning. "One of the unique aspects of this study is that we used a national survey that asked people when they want to retire," said Sherman Hanna, professor of consumer finances in Ohio State's College of Human Ecology. Hanna co-authored the study with assistant professor Catherine Phillips Montalto and doctoral student Yoonkyung Yuh. Similar surveys usually assume that people will retire at about age 65, he said.

"There is tremendous range in when people want to retire, from age 50 or even younger, to never," Hanna said. But people who are planning to retire early need to save and invest more, because they have fewer years to do it and because they'll have a longer period of time in retirement.

In this study, 35 percent of respondents said they would like to retire at age 61 or younger; of them, only 44 percent would be able to spend as much during retirement as when they were working. On the other hand, 55 percent said they would like to retire between the ages of 62 and 65; of those, 54 percent would have enough retirement resources so they would not have to curtail spending. Some respondents, 10 percent, said they planned to retire at age 66 or later. Of them, 68 percent would have adequate retirement resources.

Current level of spending also had a significant effect on whether a household would have enough resources for retirement, Hanna said. In the survey, 51 percent of respondents said they spent as much or more than their income in the previous year; of them, only one-fourth would have enough income during retirement to keep up their standard of living. On the other hand, three-fourths of the 49 percent who spent less than their income during the previous year would have enough resources for retirement.

"One of the promising things about these results is that these are two factors (retirement age and spending habits) that people can easily change," Hanna said. Having a job with a defined benefit retirement plan, owning stocks, or building up home equity all help, but not as much as spending and planned retirement age, he said.

Although investment houses and financial firms occasionally conduct "retirement adequacy" analyses, few such studies have been printed in research journals over the past decade, Hanna said. As a result, there is no set standard for what factors should be included when determining if a household will have enough resources for retirement, he said. The research team had to make several decisions that affected their analysis.

For example, the researchers assumed people would want to maintain their standard of living after retirement, so they used respondents' estimates of current levels of spending and data from the 1993-94 Consumer Expenditure Survey to estimate household expenditures.

"Some analysts say you need only 70 percent of your pre-retirement income after retirement, and it's true that when you retire, you don't have the expenses of retirement plan contributions or payroll taxes," Hanna said. "But we didn't like the idea that part of this 70 percent reduction is based on the fact that households spend less after they retire. It's possible that retirees spend less only because they hadn't saved enough. We decided the best measure for retirement adequacy would be to use their current level of spending."

The researchers also decided to include home equity in the measure of a household's asset accumulation. That's not always done because so many retirees want to stay in the home after retirement. "We included it so we could compare renters and homeowners," Hanna said. The study found that homeowners without a mortgage were more likely than renters or homeowners with a mortgage to have adequate retirement resources.

The study can be accessed at the journal's website,
Contact: Sherman Hanna, (614) 292-4584;
Written by Martha Filipic, (614) 292-9833;

Ohio State University

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