Two in three non-retired Americans say they and their significant others have some money saved for retirement, according to the July Experian/Gallup Personal Credit Index survey*. Eighty-five percent of those who have something saved say they first began saving prior to age 40. On average, these American households say they save about 12% of their monthly incomes for retirement. While these findings are consistent with other Gallup surveys pertaining to the way Americans save, they are probably surprising to those who have heard so often that Americans save too little of their monthly incomes.
Far more surprising, however, are these Americans' expectations about their future sources of retirement income. More than half of non-retirees see their homes or other real estate as a source of retirement income, including roughly one in five who see their homes or other real estate as a major source.
Sources of Retirement Income
Most working-age Americans expect personal savings to be their major source of retirement income. Forty-four percent point to their 401(k) plans as a major source, while another 39% point to other personal savings or additional investments including IRAs, and 30% expect a company pension plan to be a major source for them.
Only 28% of these Americans expect Social Security to be a major source of retirement income, although another 51% plan on it being a minor source. These low expectations for Social Security may result from the fears many Americans have about getting full Social Security benefits when they retire. Only 18% of working Americans expect that when they retire, they will receive all of the Social Security benefits they would be entitled to if they retired today. Another 18% expect to get most of the benefits they would be entitled to today.
Expecting Retirement Income From Real Estate
Although this mode of savings often gets inadequate attention, many Americans are indirectly saving for retirement as they pay off their home mortgages. Obviously, not having a mortgage payment when one retires can significantly reduce the amount of income one needs each month to live comfortably.
However, looking to one's home or other real estate as an actual source of retirement income is something else entirely. Given today's soaring real estate prices, there are many ways one might see this as a future source of income. Those living in large homes might plan to take some of the equity out of them by downsizing after retirement. Those owning second homes might plan to sell their primary residences and live in their second homes after retirement. Those owning additional real estate may plan to rent or sell it in the future.
The problem is that supply and demand can significantly affect real estate prices. Baby boomers planning for retirement could be contributing to the current surge in real estate prices. Some may be buying second homes they plan to live in when they retire. Others may be investing for the great rates of return. The question is, what happens as these investors begin retiring? Will the supply of housing for sale by retirees reverse current market conditions and flood the market? What would this mean for future real estate prices?
Worried About Retirement
In this regard, it's troubling that 22% of pre-retirement age Americans are expecting real estate to be a major source of their retirement incomes. Similarly, the structural changes that seem to be taking place in the job market may mean trouble for the 18% of Americans who plan to work part time after retirement for a major source of income.
Most troubling of all, however, is the finding that 40% of these Americans are somewhat (24%) or very (16%) worried about having enough money to live comfortably when they retire. This level of concern suggests that achieving any kind of significant Social Security reform legislation in the years ahead is going to be extremely difficult for the president and Congress.
*Results for the survey are based on telephone interviews with 1,000 U.S. adults, aged 18 and older, conducted June 13-19, 2005. For results based on this sample of adults, one can say with 95% confidence that the maximum margin of sampling error is ±3 percentage points.
For results based on 692 U.S. adults who are not retired, one can say with 95% confidence that the maximum margin of sampling error is ±4 percentage points.
