Study: Workers 'Overly Confident' in Managing Retirement Risk

Four out of five workers say they can cut back on their lifestyle if savings dry up, but it's also an attitude that could get them into trouble.

By Cyril Tuohy

American workers appear relatively confident about their investment acumen, with 62 percent of them saying people do not need to be "sophisticated investors" to manage their savings in retirement.

In addition, 66 percent of workers surveyed agree that they (or their spouse) are knowledgeable about investments and investment strategies. A total of 84 percent of workers agree that they can always cut back on their lifestyle if it looks like their savings are going to run out.

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Those are the latest findings of the 2007 Retirement Confidence Survey published by the Employee Benefits Research Institute and Matthew Greenwald & Associates Inc.

While workers seem to be relatively confident about how to manage their assets in the future, the authors of the survey also found many Americans having attitudes "that may lead to them to be overly confident about their ability to manage financial risks to their retirement."

While workers seem to be confident about their risk management abilities, retirees appear a little less so.

Just 60 percent of retirees, for example, agree that people do not need to be "sophisticated investors" to manage their savings in retirement, and 59 percent of retirees agree that they or their spouse are knowledgeable about investments and investment strategies.

A total of 70 percent of retirees say they can always cut back on their lifestyle if it looks like they might use up all their savings, the survey found.

Larger shares of women than men agree they can cut back on their spending and that people do not need to be sophisticated investors to manage their savings, the survey also found. Men are more likely to think they are not likely to live long enough to use up all of their savings.

The survey also found that higher-income workers are more likely than lower-income workers to agree that they can cut back on their lifestyle and are knowledgeable about investments.

In addition, the survey revealed that workers are underestimating the costs of health care in retirement. Less than one-quarter of workers, for example, think they'll need at least $250,000 to pay for health costs in retirement.

Yet a study published last year found that couples will need between $300,000 and $550,000 to cover health expenses in retirement, assuming Medicare benefits remain at current levels.

June 1, 2007

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