Why Pessimism is Good for Your Retirement

Realistically assessing your retirement prospects could lead you to save more.

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The stock market has almost doubled from its March 2009 lows, GDP has been in positive territory for the last five quarters, and consumer spending is inching up. Personal savings rates are back to levels not seen for nearly two decades, and U.S household debt as a percentage of disposable income has fallen to its lowest level since 2004. So why are most of us still so gloomy?

[See 10 Ways to Boost Your Social Security Checks.]

According to a new study released by the National Institute on Retirement Security (NIRS), 84 percent of Americans feel that recent economic conditions have derailed their plans for a secure retirement. As a consequence, folks have lowered their retirement expectations. Only 11 percent of those polled expect to achieve a retirement filled with leisure, travel, hobbies, and dining out. Most people blame the recession: Nearly three-quarters of the survey’s participants predict that most Americans will not be able to recoup their financial losses before they retire.

And yet, they already have. According to Fidelity Investments, 401(k) balances have now topped pre-recession levels. The Fidelity data, which includes 11 million participants in 17,000 employer-sponsored plans, attributes two-thirds of the increase in retirement account balances to the market’s performance, and the other third to new saving by plan participants. Employees who continued to make contributions despite scary stock market gyrations were handsomely rewarded for their consistency, tripling their account balances over the last decade.

[Visit the U.S. News Retirement site for more planning ideas and advice.]

Sun Life Financial’s recently updated Unretirement Index also reveals increasing retirement pessimism. Some 62 percent of respondents expect to work past age 65 due to financial necessity, up from 46 percent in last year’s survey. Conversely, the number of respondents who say they will work because they want to decreased from 54 percent in the 2009 survey, to 39 percent this year. Not surprisingly, those with lower incomes are more likely to cite economic necessity as the reason they’ll be working into retirement.

Those who study investor behavior shed some light on why we’re having trouble shaking the blues. It turns out that fear is a stronger motivator than greed when it comes to money. And since most people are still feeling fear despite increasing reports of economic recovery, residual pessimism remains. But that may not be such a bad thing.

[See 5 Reasons Your Retirement Will Include Work.]

According to the NIRS study, 52 percent of respondents are increasing the amount they are saving, and more aggressively paying off credit card debt as a result. Ameriprise Financial found similar improvements in savers’ behavior in their 2010 New Retirement Mindscape II study. Respondents six to 15 years away from retirement are more likely to be saving for retirement now (80 percent) than they were when the same study was conducted five years ago (72 percent). Perhaps a little residual gloom is just what we need to get our retirements back on track.

Sydney Lagier is a former certified public accountant. Since retiring in 2008 at the age of 44, she has been writing about the transition from productive member of society to gal of leisure at her blog, Retirement: A Full-Time Job.