What Is Derailing Boomer Retirement?

Study after study has demonstrated Baby Boomers’ lack of preparedness and confidence in their retirement savings, and Ameriprise Financial Inc. has attempted to uncover the causes.  

Retired and pre-retired Americans report they’ve lost, on average, $117,000 in retirement savings because of events that they did not anticipate, according to Ameriprise’s “Retirement Derailers” survey.

The survey examines events and situations that helped erode retirement savings; states that Americans still maintain a positive outlook for retirement; explores some common regrets; and measures the importance of having a written financial plan and working with an adviser.

Over half those surveyed (57%) expressed regret about not beginning to save earlier. About a third (37%) admitted to believing they would be in better financial shape if they knew more about investing. Three in ten (29%) said a written financial plan would have helped them be in better shape for retirement. Nearly a half (42%) said they would rely on a financial adviser for assistance.

The survey points up the value that investors accord to financial advice. Of those surveyed who have an adviser, about three-quarters (74%) reported having a financial plan, compared with 39% of those without advisers.

Having a written plan can help boost financial stability in retirement. Those with written financial plans expressed greater confidence in being able to afford essentials (66%) and unexpected expenses (69%) than those without a written plan, who expressed were about 59% confident in their ability to meet these costs.

The majority (90%) of Americans ages 50 to 70 with $100,000 or more in investable and retirement assets have experienced at least one “derailer,” an economic or life event that has made an impact on their retirement savings goals.

The average respondent experienced four of these events, which range from events that are beyond their control, such as the effects of the recession, to family and lifestyle choices with lasting financial consequences. In the end, these events set respondents back $117,000 on average. In fact, nearly two in five of the respondents (37%) experienced five or more unanticipated events, costing them approximately $144,000. 

Planning Is Key

“Expecting the unexpected is clearly more important than ever in preparing for retirement,” said Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial. “We know the recession had a huge impact on American pre-retirees and retirees, but families are realizing that other unexpected events like supporting a grown child or grandchild can also hit the bottom line – both immediately and long-term. The good news is that these unanticipated events don’t always have to be retirement derailers – they can be addressed with a plan in place.”

The top three most cited derailers are, unsurprisingly, related to the recession. Nearly two-thirds (63%) of respondents say low interest rates impacted the growth of their investments. More than half (55%) say their savings were significantly lowered because of market declines and one-third (33%) admit their home equity is not going to help fund retirement as much as they expected.

Still, many respondents experienced life events that derailed their retirement. One in four (23%) are supporting a grown child or grandchild and just as many (23%) say their pension plan is not worth as much as they’d thought or has been discontinued. What’s more, one in five respondents’ retirement goals have been thrown off track because of bad investments (22%), taking Social Security before retirement age (19%) and/or experiencing a job loss (18%).

While it appears that Boomers have found a way to make it work in the short-term as they weather these unexpected derailers, they may not have the ability to be as resilient after they leave the workforce. Only 33% of respondents say they are extremely or very confident they would be able to afford an unexpected expense such as large home repairs in retirement.

Nine in ten respondents admit to having had at to at least one bump in the road, but 64% still describe their road to retirement as “smooth” rather than “bumpy”. However they might not be considering the full impact the derailers they’ve experienced have had. Fewer than one in five (18%) say their savings are ahead of where they thought they’d be 10 years ago, and 42% admit they’re behind. 

The More Derailers, the More Bumps

To what extent do they consider themselves derailed? More than half (55%) of those who’ve been derailed at least once say the impact on their finances has been extremely or somewhat serious. This number rises to 83% of those who have experienced five or more derailers.

This sobering statistic is followed by yet another apparent disconnect; only one-third (35%) agree that the financial loss caused by the derailers they experienced will affect their ability to afford essentials in retirement by a lot or a fair amount. Those who experienced five or more derailers are telling a different story – three in five (60%) say affording essentials in retirement will likely be more difficult because of the savings lost to derailer events.

More than half (56%) of respondents point the finger at others for their financial situation, but that’s not to say that they don’t take some responsibility. When it comes to what they would do differently if they could do it over again, 57% say they would’ve started saving earlier. Younger generations should also take note that in addition to saving earlier, many Boomers express that they think they’d be in better financial shape if they had known more about investing (37%) or if they had spent less on extras such as vacations and meals out (33%).

Boomers have a few ideas for how they’ll get back on track, and for most (80%) it starts with themselves. More than two in five also plan to rely on a spouse (44%) or a financial adviser (42%) to get their retirement finances back on track. This group may be on to something – those who work with a financial adviser are much more likely than those who don’t to have a written financial plan (74% vs. 39%), and survey results show having this kind of plan in place can boost confidence and make for a smoother path to retirement.

“Ninety percent of us will likely be faced with at least one of these big events at some point in our lifetimes,” de Baca said. “Being ready for these derailers and having a written plan to help manage through them can make a world of difference when it comes to securing a long, successful retirement.”

TheRetirement Derailers survey, commissioned by Ameriprise and conducted by Koski Research, was based on phone interviews of 1,000 employed and retired Americans ages 50 to 70 between February 21 and 28. All respondents have investable assets of at least $100,000 (including employer retirement plans, but not real estate).

De Baca answers questions about retirement derailers in a four-minute YouTube video, and the Retirement Derailers survey can be downloaded here.