Workers’ retirement expectations at odds with reality, survey finds

What workers think will happen during their golden years is a lot different than what retirees report is actually reality, a new survey found.

Worker expectations over when they will retire, whether they will work in retirement, and what role Social Security and Medicare will play in their lives differ quite markedly from the experience of retirees now, according to a survey by the Employee Benefit Research Institute (EBRI) and Greenwald Research that polled 1,320 workers and 1,217 retirees online in January.

The disconnect underscores how workers need to educate themselves more about what to expect in retirement to help them better prepare for the future.

“This level of difference in terms of work expectations has persisted for close to two decades, so now many of those workers are now retirees and the numbers haven’t changed,” Craig Copeland, director of Wealth Benefits Research at EBRI, a nonpartisan, nonprofit research institute based in Washington, D.C., and chief researcher for the group’s 33rd annual Retirement Confidence Survey, told Yahoo Finance.

Retirement age and working

As in prior years, there’s a huge gap between when active workers expect to retire and when retirees say they actually did: Workers report an expected median retirement age of 65, while retirees report they retired at a median age of 62

One in three (33%) workers expect to retire at 70 or beyond or not at all, while only a slim 6% of retirees report that came true. A little less than 1 in 3 (32%) say they will retire before age 65.

“An important fact driving this result is that roughly half of workers retire earlier than expected, with about 40% because they have a health problem or disability or they have to care for someone who has these issues,” Copeland said.

Another third retired earlier than expected because they were laid off or their company had a reorganization, leaving them searching for a new job near retirement age, he added.

“Actually being able to work past traditional retirement ages is not likely to happen for many Americans,” he said. “Workers today need to be preparing for this eventuality and plan accordingly.”

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That dovetails with another mistaken assumption by workers over income sources. A whopping three-quarters of workers expect to continue to earn a paycheck in their retirement years, yet less than a third (30%) do.

The idea of working in retirement sounds great in theory, but it’s tricky.

“Life often gets in the way of plans to work into retirement,” Richard Johnson, director of the Program on Retirement Policy at the Urban Institute, told Yahoo Finance. “People who thought they would work well into their 60s sometimes develop nagging health problems that make work less attractive, or they need to care for grandchildren or aging parents or spouses. Others lose their jobs and find that employers are reluctant to hire a 60-year old. And some want to work only part time but their employer won’t give them that flexibility. All these factors make older workers rethink their plans to keep working.”

Medicare and Social Security

Workers also underestimate Social Security as a source of income in retirement. Only a third, 33% of workers, expect Social Security will be a major source of income in retirement compared to the majority (67%) of retirees who say it is.

The recent annual report for the Old-Age and Survivors Insurance (OASI) Trust Fund, showed Social Security’s reserves are projected to run out in 2033, at which point the program will be able to pay out just 77% of benefits to seniors. The repercussions for many workers who plan to rely on Social Security for a major portion of their retirement income would be significant.

Workers’ confidence in Medicare has also dipped, according to the survey. A little over half of those workers feel at least somewhat confident it will continue to provide benefits of equal value to today, down from nearly 6 in 10 last year.

Retirees’ confidence in their Medicare benefits, however, has not faltered in the past year. About 7 in 10 are very or somewhat confident benefits will be of at least equal value in the future.

Running the numbers

One way workers can close the expectations-reality gap is to investigate the true costs and financial needs for retirement.

For instance, when asked if they had actually tried to calculate the cost of their future healthcare, 46% of those 55 and older had done so, compared to 39% of those 45 to 54 and 35% of workers ages 35 to 54. And 51% of workers say they have tried to calculate how much money they will need in retirement.

A large portion of workers — 2 in 5 — go to their family or friends to get information about retirement planning. Only 1 in 5 turn to their workplace retirement plan provider for help, and 1 in 3 use a personal financial advisor.

“I worry that a very consistent 2 in 5 workers and 1 in 5 retirees say they do not know who to go to for good financial or retirement planning advice,” Lisa Greenwald, CEO of Greenwald Research, told Yahoo Finance.

Kerry is a Senior Reporter and Columnist at Yahoo Finance. Follow her on Twitter @kerryhannon.

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