Retirement Cliff Looms for Many in the Middle Class

More than a third of Americans could live at or near poverty in retirement, according to Wells Fargo’s annual survey on retirement planning attitudes and behaviors.

In the final weeks before the Presidential election, much has been said of the “middle-class squeeze” and the “fiscal cliff,” but a greater obstacle looms in the distance: millions of Americans who are underprepared for retirement with diminishing prospects for how to manage their future and avoid poverty.

Half of middle-class Americans (52%) say their most important day-to-day financial concern is paying the monthly bills, up from 37% a year ago, according to the latest annual Wells Fargo Retirement Survey. Saving for retirement is in second place, with less than a fifth (16%) saying it is a key concern. Over half of pre-retired Americans (53%) say they are not confident they will have saved enough for the life they want in retirement, up from 42% percent in 2011.

One third (30%) of Americans say they will need to “work until at least 80,” in order to live comfortably in their retirement years, up from 25% a year ago. Yet, 73% of Americans said their employer would not want them to work in their 80s. Similar to 2011, 70% of middle-class Americans say they will work in retirement, with 39% saying they will work out of financial necessity.

Thirty-four percent of middle-class Americans estimate their retirement income will consist of 50% or less of their current annual income. According to the Census Bureau, median household income for Americans in 2011 was $50,054. Americans say they need less than half of their pre-retirement income, and this translates to $25,000, close to the poverty line for a family of four, according to the government.


Middle-class Americans say they will need a median of $300,000 to support them in retirement, but to date, have only saved $25,000 (median). When asked what percentage of their nest egg they expect to withdraw annually in retirement, the median withdrawal predicted by middle-class Americans is 10%. Many experts say withdrawals should be maintained at 3% to 4%.

Almost half (40%) of middle-class Americans without a written retirement plan say they haven’t planned for retirement because they are too focused on “current financial obligations.” This is particularly true for people in their 50s, of which 54% say they are too focused on today to plan for the future.

Half of middle-class (51%) Americans say they need to “significantly” cut back on spending money in order to save for retirement, and this jumps to 61% of those who are in their 50s—prime retirement saving years.

“It is so tough for Americans to save for retirement, and we feel it is very important to keep shining the light on this issue,” said Joe Ready, director of Wells Fargo Institutional Retirement and Trust. “People say they’ll work longer, but how possible will this be for millions of Americans? Preparing for retirement can’t be kicked down the road, because the other picture that is emerging is how many people will live very close to the poverty line in retirement. We’ve got to marshal our resources as a country, an industry and as individuals to deal with the issues creating this cliff.”


Key highlights of the survey include:

  • 70% of middle-class Americans say they are not confident in the stock market as a place to invest for retirement.
  • Three quarters (75%) of Americans describe their calculations for retirement to be some sort of a guess, while 22% describe their planning efforts as detailed and based on “calculations.”
  • When provided with a list of activities, middle-class Americans say that in the last 12 months, they’ve spent the most time planning a home remodel, followed by planning a vacation. Planning for retirement fell to third place in the list of priorities.
  •  A little more than a third (36%) of Americans has a written plan for retirement, up from 30% in 2011, while 46% of people between 50 and 59 attest to a written plan.
  • Middle-class Americans believe the median cost of their out-of-pocket healthcare costs in retirement will be $47,000. The Center for Retirement Research has estimated a typical couple at age 65 can expect to spend $260,000 or more over their remaining lifetime.
  • If given $5,000 to invest for retirement, 40% say they would invest it in a CD or savings account, 24% would invest it in stocks and 22% say they would invest the money in gold or precious metals. Of note, 37% of middle-class Americans in their 30’s would invest the money in the market versus 18% of Americans between the ages of 25 and 29.

Social Security Plays a Lead Role in Retirement Vision 

Social Security continues to be a strong component of retirement planning for the middle class. Middle-class Americans between the ages of 25 and 75 expect to begin taking or began taking Social Security payments at the median age of 65 and estimate payments will cover a median of 25% of their monthly retirement income. However, 27% of people between the ages of 25 and 49 say that Social Security won’t cover any portion of their retirement.

Yet, for those who say they expect to take Social Security, a majority (71%) of non-retirees said they would prefer delaying the age they begin taking Social Security so they receive higher payments. There are differences between the genders, with 51% of women in their 40s and 50s predicting they’ll take Social Security between the ages of 61 and 65, versus 35% of men.

On behalf of Wells Fargo, Harris Interactive Inc. conducted 1,000 telephone interviews of middle-class Americans in their 20s, 30s, 40s, 50s, 60s and 70s from July 9 to September 12 about their attitudes and behaviors around planning, saving and investing for retirement.

To target the middle class, the survey included only respondents who fell within specified income and wealth brackets. Those between the ages of 25 and 29 had 2011 household income of $25,000 to $99,999 and household investable assets of $99,999 or less. Those between the ages of 30 and 75 had 2011 household income of $50,000 to $99,999 or household investable assets of $25,000 to $99,999. The lower limits for 20-somethings were used to reflect the early stage of their careers. For the 20s age group, only respondents age 25 to 29 were included in order to focus on workers.