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Investing for Retirement - Are Americans becoming realistic?

"80 is the new 65" according to this recent Wells Fargo survey on retirement savings and investing  -- Americans are recognizing they may need to work past 65 to finance retirement, and 25% expect to work at least until the age of 80.

But how realistic are their expectations?  The survey indicated that the average American had saved a median of $25,000 towards retirement and estimated they would need to accumulate a median of $350,000 to support themselves in retirement.  The majority of respondents expressed reluctance about investing in the stock market with 45% preferring bank certificate of deposits over stocks or mutual funds. Those surveyed expect to withdraw about 18 percent on average from their savings each year in retirement.

We plugged these numbers into our Portfolio Research Retirement Planner to see how realistic American investors have become. In the case of a 45 year-old contributing $3,000 per year to a conservative portfolio, the $350,000 goal could in fact be met by working until the age of 80 and not withdrawing any funds, so in this respect Americans appear to be coming to grips with reality. However withdrawing $63,000 per year (18% of the balance upon retirement) will drain this individual's savings in less that seven years so this assumption appears more wishful thinking (but perhaps this is less problematic for individuals working until such an advanced age).

Investing these amounts in a more risky portfolio might enable the investor to retire much earlier - between the age of 70 to 75 years in the median scenario, and draw down $63,000 per year for a longer period, but of course they would face more volatility.

So it seems that Americans have become a bit more realistic about funding their retirements, at least in terms of a willingness to work later in life. However a more aggressive investment plan might make the process easier and retirement draw-down assumptions remain murky.