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RIA Survey: $1 Million Not Nearly Enough for Retirement

March 1, 2010
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While the average American family believes $1 million is the gold standard for retirement savings, a new survey by Scottrade Advisor Services finds that most independent advisors think this number is probably way off.

Seventy-one percent of RIAs said that the average family needs to save double or triple that amount, according to a survey by the St. Louis-based investment firm. The 2009 Registered Investment Advisor Study, which polled 226 registered investment advisors from Aug. 12 through Sept. 30, focused on the four main segments of the population: Generations Y and X, boomers and seniors.

The recommended investment goals for Generation Y (ages 18-26) are the greatest. More than three-quarters (77%) of advisors recommend a goal of at least $2 million, while more than 40% of RIAs say Generation Y should be aiming for more than $3 million in retirement funds. Generation X (ages 27-42) should save between $2 million and $3 million, according to 46% of RIAs surveyed.

Another 22% said that Gen Xers should have $3 million in retirement funds. Thirty-five percent of advisors polled feel that boomers (ages 43-64) need between $2 million and $3 million to retire, with another 13% believe that they should have more than $3 million. Meanwhile, another 35% of RIAs say boomers should have a retirement goal between $1.5 million and $2 million.

Seniors (ages 65+) are the only generation for whom $1 million might be sufficient savings for retirement according to many of the advisors surveyed. Forty-four percent of RIAs said that $500,000 to $1.5 million is a sufficient target for seniors. Only 20% of advisors recommended a savings goal between $1.5 million and $2 million.

Sheryl Garrett, the founder of The Garret Planning Network, an international network of fee-only advisors, said that younger people often have an “illusion of wealth,” in which $1 million sounds like an endless supply of money. But once you take a million dollars and factor in that an 18 year old might not retire for another 49 years — a (conservative) 3% inflation would place that $1 million at something closer to $4.3 million, Garrett said.

“For the younger age groups my advice is to not plan on Social Security income,” she said. “It’s kind of like planning on getting an inheritance when you look at your parents and they’re barely making ends meet.”

Garrett also cautioned that when RIAs are looking at what the average American family would need to live on, they are talking about an income that hovers somewhere in the $50,000 range. This does not take into consideration those who are used to living on $75,000 or $100,000. All of the projections also don’t take into consideration the periodic big expense or significant long-term care costs. Garrett said that her parents, who are in pretty good health, still have to spend about $1,000 a month on medical costs.

She said that she looks at four variables of retirement planning — how much we save (or don’t spend); how much return we can get on our investments on retirement; working longer; or dying earlier. Not surprisingly, “dying earlier” is not part of Garrett’s financial planning process.

“Most Americans don’t tend to take much responsibility or accountability for how much influence we have on our spending and how much longer we can work,” she said. “We don’t have much control over our investments—we can come up with a sane asset allocation and see how the markets play out. The real obligation we have is always saving a little something.”

 

What do you think is a sufficient retirement savings goal for the average American family?

Postby Community Manager >> Mon Mar 01, 2010 12:50 pm

What do you think is a sufficient retirement savings goal for the average American family?

Community Manager
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Thu Nov 13, 2008 10:30 am
Postby Bradly T. >> Mon Mar 01, 2010 6:22 pm

The variables (factors) are x,y, z : longevity (after retirement), inflation, distribution rate. Who can put a number on that? Standard of living or present value is base number and can be ascertained but future value is determined by multiplying base by x, y, and z (not to mention a rate of return multiplier on your savings/accumulation rate). But it is easy to believe that each generation of 20 - 25 years gap will need more than twice as much as the generation before. I am not so skeptical as others regarding SS retirement benefits....there's at least 4 ways to fix it (when there is finally no choice but TO fix it). And recent demographic studies indicate a strong "echo" boom of birth rate and immigration for USA to help alleviate current imbalance in workers/retirees ratio within 10-15 years. But I think a fixed dollar target is pretty silly. I've got retired clients with $250,000 which may be plenty based on guaranteed incomes and ability/experience in living within their means. I have others with $2.5mm I worry about due to extravagence and "entitlement" behavior and debt carried into retirement. People who have more and make more and spend more will need MORE. The impacts of debt and spending and poor risk management are at least as important as savings rates and accumulated investable assets. The result of increasing savings rates applied to increasing income and declining debt ratios is the planner's best friend. Even modest rates of return show amazing future values with the "right" formula for accumulation. The best we can do is modify and manage behavior to accumulate wealth and reduce risk...you want us to predict a required future value for 25 year olds' retirement security??

Bradly T.
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Mon Mar 30, 2009 3:35 pm
Postby Tad Borek >> Mon Mar 01, 2010 9:25 pm

Community Manager wrote: What do you think is a sufficient retirement savings goal for the average American family? They should do a follow-up question: without looking it up, what percentage of pre-retirees (ages 55-64) do you think have $1 million+? These surveys may say more about the respondents than the actual savings needs of retirees... -Tad

Tad Borek
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Thu Nov 13, 2008 10:30 am
Postby Bob H >> Tue Mar 02, 2010 8:49 am

$1 mill is enough if you need $40k in retirement. If you need more... then Ya gots a problem.

Bob H
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Thu Nov 13, 2008 10:30 am
Postby Peterb6086 >> Tue Mar 02, 2010 9:04 am

Isn't it better to view average retirment needs as a multiple of final working incomes ie 10-12X?

Peterb6086
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Thu Nov 13, 2008 10:30 am
Postby debaser >> Tue Mar 02, 2010 9:13 am

$1mm isn't enough when either a client needs upwards of $50k+ per year or the advisor doesn't understand how to tap into assets that don't produce income and turn them into assets that do.

debaser
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Thu Nov 13, 2008 10:30 am
Postby Bradly T. >> Tue Mar 02, 2010 6:07 pm

Yes Peter...exactly!! You must be a planner - evidently journalists and investment advisors don't know that much....!

Bradly T.
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Mon Mar 30, 2009 3:35 pm
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