Preparing for Retirement: The Roles of "How Soon" and "How Much"

Executive Summary Retirement. As a population, we tend to vastly underestimate how much we'll need to have for it. We tend to put off preparing for it until it's time to do it. And, we would rather ignore the details for as long as possible and hope it works out. These issues represent the primary driving forces in the determination of retirement planning. This study examines retirement planning behavior from the viewpoint of the retirement planning client. The results suggest policy and procedural adjustments are needed in order for retirement planning professionals to better assist individuals in their retirement preparations. Introduction When people are asked what the single largest expense in their life will be, most respond sending their children to college or paying for their home. While these are important concerns, the cost of retirement is usually far more expensive (Antaki, 1999). Many people view retirement as many years away, so they do not give it much thought. Even though retirement is years away, it can last twenty years or more. Given such a long period of time, when one is not working, a great deal of financial planning during one's working years is required. The confluence of several economic and social trends has made retirement planning a topic of significant interest to researchers, government, corporations and the general population. A paradigm shift has occurred with the convergence of the aging of the Baby Boomer generation, the uncertainty about Social security's survival, the change from defined benefit to defined contribution retirement plans, corporate downsizing, and the significant increase in female participation in the workforce. Some companies, due to massive restructuring or downsizing, are offering early retirement incentives to purge the corporate workforce. And recently, the federal government has passed legislation to assist individuals fifty or older with "catch-up" savings mechanisms. The shift is one from "We're" going to take care of you to "You" better take care of yourself. Retirement planning is best viewed as a process, as opposed to an event. As individuals progress through their careers and retirement becomes more salient, the perceptions and behaviors of these individuals change. Given the long-term nature of retirement planning, it behooves both the seller and the buyer to develop continuing relationships (rather than engaging in discrete, onetime transactions). In order to gain a deeper understanding of the retirement planning process, it is necessary to examine the attitudes and perceptions of those for whom all this planning is being done (i.e., the buyers). In other words, the perspective of the retirement planning customer is of critical importance in understanding the relational issues involved hi the buyer-seller dyad (Varki and Wong 2003). Two critical buyer perceptions that tend to trigger retirement planning are retirement financial needs and retirement immediacy. With an understanding of how perceived needs and immediacy impact the buyers' retirement planning, employers, as well as those in the financial planning community, will be in a better position to assist individuals in their retirement planning. The following literature review examines the importance of retirement planning, the level and type of employer retirement contributions, perceived retirement savings needs, and the impact of retirement immediacy. Literature Review The Importance of Retirement Planning Retirement planning is an important subject for any "graying" society. The 1995 Survey of Consumer Finances (SCF) reported mat 51 percent of Americans plan to retire by age 62 and 89 percent by age 65 (Lahey and Kim, 2001). This trend is further evidenced by census data that reported the average retirement age has decreased from 67 to 62 years old during the 1990s (Purcell, 2003). Greninger (2000) estimated that Americans should have saved 50-60 percent of thenretirement income by the tune they reach 50 years old and 85-90 percent by 60 years old. …