According to this year's Fidelity Retirement Study, the difference between having a written financial plan,
and not having one, magnifies a significant gap between those who have long-term financial confidence that
their savings will support them during retirement (~81%) and those who either have ongoing financial concerns that they won't or who are completely unsure (~45%). A whopping ~31% have no idea how much they will even be able to save before retiring. For those without any semblance of a plan, not establishing at least a target savings balance,
a Social Security claiming strategy, or a tentative withdrawal rate, only serves to compound the concern, and possible options, the older they get.
All in all, ~60% of households feel confident that they will have enough savings to last through retirement,
which is down from 67% last year. Only ~20% are very confident that they will have enough saved.
Confidence in the ability to afford basic expenses in retirement (~69%) is much higher than the confidence in the ability to pay for medical expenses in retirement (~38%), with those costs rising at a much faster rate than general inflation.
Another issue, and reason to be as prepared as possible as soon as possible, is that ~46% of retirees reported having to stop working earlier than planned. This was often due to a hardship, such as a health problem or a disability (~41 %), with ~35% saying that they retired due to changes at their company. You can plan to retire at a certain age, but circumstances may arise that cause you to stop working sooner than expected/planned.
Of those who have reached a common retirement age of 62, ~36% continue to work by choice, wanting the income to help buy extras (~75%), to avoid reducing their savings (~56%), needing the income to make ends meet (~41%), to help financially support others (~29%), due to a decrease in the value of their savings/investments (~27%), or to keep health insurance or other benefits (~17%).
Of the roughly 50% of households who have actively tried to determine how much they will need to save for retirement, ~39% have done so largely by consulting with friends and family, ~35% have used online sources and calculators, and ~26% have read online articles/asked ChapGPT/Social Media. Not exactly a good example of doing your due diligence for such an important topic. Nearly 30% of households use the services of a financial adviser to help prepare for retirement, and ~20% are not actively trying to determine how to prepare for retirement at all.
So it seems that the majority of households still do not utilize a written, detailed, and individualized financial plan, even though it would likely provide a much greater sense of financial security for retirement. This is concerning. At the very least, knowing where you might be falling short, and what options you may have to get yourself into a better position, would make the exercise well worth the effort. Regular engagement with your finances, current and future, can pay big dividends, with ~92% of those who do so finding that it significantly increases their confidence in their ability to make better decisions for the future. Having a financial plan, and monitoring it, makes it far easier to concentrate on:
• Spending patterns - are things turning out as expected?
• Investment results - is your risk tolerance appropriate for your age, and is your investment performance as expected?
• Reviewing tax liability - can you improve your tax situation by using Roth Conversions (and lowering future RMD's)?
• Is your plan for health insurance/Medicare/long-term care sufficient, especially based on family history?
• Life changes - life circumstances, wants, and needs, shift over time. Does your plan adapt over time?
A good retirement plan pulls together everything that influences your financial life: how you spend, how you save, how you invest, the risks you face, and the timeline you’re working with. All of it helps define what “enough” means for you.
But this is not just about numbers - it is about how you would like to live during a very important time of your life. Reflection about these issues leads to a better understanding of what might be needed to live comfortably, and about being confident in your ability to achieve your goals. The idea is to be as informed as possible, and to be ready for what comes next. Be sure to model "what-if" scenarios. You can't predict the future, or eliminate uncertainty, but you can be prepared for the unexpected by knowing what your options are, and what steps you can take to protect yourself,
should the need arise. Always be as prepared as possible!