Wondering just how confident you can be in your retirement savings? It’s a question that weighs heavy on many of us. So we asked an expert to weigh in.

by Gary Foreman

To help us answer that and other retirement-related savings questions, we contacted Eric D. Brotman. Mr. Brotman is the principal of an independent firm that assists clients with wealth creation, preservation, and distribution. He’s been providing financial planning advice since 1994 and has authored Retire Wealthy.

Q. It seems very few of us are very confident in our retirement savings. Why do you think that’s true?

Mr. Brotman: Americans lack basic financial literacy, and as a result, it is almost impossible to have confidence in one’s own ability to manage financial affairs.

In addition, a shocking majority of workers are one missed paycheck away from serious problems and are not able to save meaningfully or at all. The combination of lack of education/training/knowledge and lack of available resources to save is a difficult one for confidence in retirement savings.

Q. In your estimation, what would help people in their 50s and 60s to be more confident in their retirement savings?

Mr. Brotman: Education can be very empowering and taking a course on financial literacy at a community college or online, or reading one or more books on the subject can be excellent first steps.

In addition, having an independent financial advisor provide an agnostic review of their retirement savings and financial plans can be worthwhile to instill confidence and/or to encourage taking action, as needed to achieve confidence.

It isn’t enough for people to save money or even to invest it; they have to have reasonable, measurable, and achievable goals and plans to accomplish them.

Q. Are there certain levels of savings that generally are considered comfortable? Or does each person have their own goal?

Mr. Brotman: There are different types of savings.

In general, an emergency fund held in cash to cover unexpected expenses should be anywhere from three to six months of household income. For retirees, in an ideal world, five full years of expenses would be set aside in cash or cash equivalents (money markets, certificates of deposit, etc.).

In terms of total retirement savings, to be comfortable, people need to be able to live on no more than a 3-4% annual withdrawal from their working assets and to have a plan to ride out market volatility along the way.

That said, each person’s plan will be impacted by his/her own health, marital/family situation, personal debt, and general psychology and philosophy about money which could be higher or lower than these “rules of thumb.”

A Guide: Your Emergency Fund in Retirement

Q. How confident are people that their retirement savings goals are correct? Do many question whether they have the proper amount in mind?

Mr. Brotman: Very few people realize just how expensive it will be to retire and most people also underestimate their own life expectancy based on their parents or grandparents.

To build a nest egg which allows for income which is as close to 100% of pre-retirement income as possible and which cannot likely be outlived is a very tall order, and when it is measured and defined, very few people are accurately or appropriately confident in their retirement savings goals, much less their actual retirement savings. Most people do not have the proper number in mind, as they forget the impacts of inflation and longevity in their planning.

Q. How does debt play into the equation?

Mr. Brotman: Adverse debt is a great inhibitor of wealth-building and retirement success. Not all debt is adverse debt. Some is tax-advantaged leverage or collateralized investment, but all consumer debt is by definition bad debt and should be eliminated prior to any attempt at retirement.

Q. Financial advisors used to counsel those approaching retirement to reduce the amount of risk in their retirement savings accounts. But now as people live longer that advice seems to be changing. What advice on risk do you give those who are soon to be retired?

Mr. Brotman: It is important to maintain some assets that are available in the short-term, say 60 months, in cash or cash equivalents, and to maintain other assets which provide income and will be available over the intermediate term (10 years or so).

Beyond that 10-year horizon, assets can be invested in a way which is similar to pre-retirement asset allocation because there is generally adequate time to recover from volatility. As a result, some assets/accounts should be positioned with less risk, but not all assets/accounts.

• You Didn’t Save Enough for Retirement and You’re 55+
• Playing Catch-Up With Your Retirement Savings
• Could Debts Ruin Your Retirement?
• What Retirees (and the Nearly Retired) Need To Know About Compound Interest
• How To Minimize 4 Risks to Your Retirement Savings

Reviewed April 2024

About the Author

Gary Foreman is the former owner and editor of the After50Finances.com website and newsletters in 1996. He's the author of How to Conquer Debt No Matter How Much You Have and he's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.