There’s a significant perception/reality gap among most pre-retirees and retirees today. That’s one of the key takeaways from a new study published by the Stanford Center on Longevity (SCL), titled Disconnected: Reality vs. Perception in Retirement Planning.

The study shows that most of today’s pre-retirees and retirees lack sufficient savings to fully retire at age 65 and that generally, they’re not financially prepared for retirement. Yet they hold unrealistic financial expectations for their retirement years, and they’re not taking steps to help make their retirement dreams come true.

Let’s look at the evidence of this perception/reality gap and what can be done about it.

A serious retirement planning challenge

SCL and Greenwald & Associates fielded a survey of 2,000 pre-retirees and retirees about their goals for retirement, the steps they’re taking or have taken to plan for retirement, and their financial resources.

The majority of pre-retirees and retirees surveyed reported having modest retirement savings, with the median value reported as $128,000. For these respondents, the amount of lifetime retirement income generated by this amount, even when combined with Social Security benefits, will be much less than their pre-retirement income. This result is confirmed by several other studies.

As a result, most pre-retirees won’t have sufficient retirement income from all sources to retire full time at age 65 under their pre-retirement level of spending. Because of this, they may face potentially difficult decisions: Delay retirement, reduce their spending, and/or utilize all their financial resources, such as their home equity, to maximize their retirement cashflow.

What are some common retirement priorities and concerns?

Eight out of 10 survey respondents reported the following goals as extremely important or very important:

Feeling financially secure for the rest of their life
Being able to afford care or assistance if they need it
Being financially able to maintain the lifestyle they want in retirement
A little more than two-thirds of respondents also reported they believe it’s important to be able to support their pre-retirement lifestyle.

The top four concerns reported by half or more of the survey respondents all focused on the uncertainties they face when planning for retirement, including the unknowns about:

Inflation
Health care expenses
A possible reduction in Social Security or other government benefits
The high costs of long-term care
A little more than one-third of respondents were concerned about future major house repairs—a risk that many experts caution is often ignored when planning for retirement expenses.

Achieving these goals and addressing these concerns may be very difficult, however, given the modest retirement savings noted above.

Most pre-retirees fall short with their planning

The survey responses of pre-retirees and retirees supply evidence that they need help:

Only one out of 10 of respondents say they’re very comfortable regarding their finances and just over half (55%) report they’re either fragile or only able to get by when it comes to finances.
Many pre-retirees and retirees have a limited view of retirement planning, often focusing just on saving for retirement and reducing debt.
Most pre-retirees and retirees don’t give themselves high marks on retirement planning. Six out of 10 respondents feel they should have done more planning than they did. Almost three in four pre-retirees and retirees want to do more planning in the future.
Almost half (46%) of pre-retirees report they’ll base their decision to retire on their age instead of attaining a target amount of savings. Another 30% report they have no plan for deciding when to retire. The experts interviewed for the SCL study noted that deciding when and how to retire is one of the most important decisions facing pre-retirees.

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