BlackRock, the world’s largest money manager, recentlyasked a group of Americans in defined-contribution plans, such as401(k)s, how they're fixed for retirement. Most said they're ontrack to kick back in comfort.

|

Related: Who's optimistic about retirement?

|

Are they crazy?

|

If they are, so are some of the equally sanguine professionalsrunning their 401(k)s.

|

The nation was served up a big fat plate of economicoptimism in President Donald Trump's speech Tuesday night,which helped send the S&P 500 Index up 1.4 percent, to arecord 2395.96, in its largest single-day advance since theelection. The index is up 12 percent since Nov. 8.

|

Such optimism is largely a good thing. Without it,consumers might not make the big purchases that fuel so muchof the economy. We might not work as hard at our jobs,assuming we'll make more money and get a promotion, so productivitywould take a hit. We might not save as much if we figureeverything's going to work out fine.

|

The dark side of optimism is overconfidence, a well-chronicledkiller of wealth, memorably dubbed irrational exuberance by formerFederal Reserve Chairman Alan Greenspan in the dot-com bubble ofthe late 1990s. Some academic studies suggest that the moreinformation we get, the more confident we become in our decisions.Yet, with all the market noise, our decisions aren't always alot better than those of people without all that information.

|

The survey commissioned by BlackRock suggests that many of thosewith money in workplace defined-contribution plans may beoverconfident about future returns.

|

Related: Long life expectancy, expensiveretirement

|

The poll, of 1,002 plan participants with at least $5,000 savedin their current employer's plan, looked at howconfident workers were about being able to enjoy a niceretirement. More than half of the participants said they were oncourse to "retire with the lifestyle they want" — 56 percent, upfrom the annual survey's reading of 52 percent last year. Nearly 70percent think they can save enough to meet their financial goalsfor retirement.

|

The problem is, many of these individual savers expect returnsto be far higher in the future than financial firms do, perhapsbecause we often assume that what's happened in the recentpast will continue in the future. Sixty-six percent of saversin the survey expect returns in the next decade to track pastperformance. Even-higher returns than in the past are expected by17 percent. Almost two-thirds of workers said they didn't knowthat Wall Street expects "notably lower" market returns in thefuture.

|

Related: Financial stress hazardous to emotional, physicalhealth

|

In fact, stock and bond returns could be half of what Americanshave grown used to in recent decades, according to consensusforecasts of 35 companies in the financial industry that weregathered by Horizon Actuarial. Maybe workplace retirement savingsplans should come with those reminders that fund companieshave on ads touting their products' returns: Past performanceis no guarantee of future results.

|

The workers' views mostly reflected those of the 200 plansponsors surveyed for the report. Seventy percent of thebenefit and finance professionals at plan sponsors said that overthe next 10 years, the annualized return for U.S. stocks willmirror the past or be higher. Even more (78 percent) expected bondreturns to be around the same or higher than in previous years.Even taking into account the high margin of error for this smallergroup — at +/- 6.9 percent — that's a lot of optimism for thepros.

|

In the shorter term, a recent survey by brokerage firm EdwardJones of 1,105 people, done between Jan. 19 and Jan. 22, showedmore optimism than pessimism about the Trump administration'simpact on their strategy for retirement savings. Forty-twopercent of those with investments think the new administration willimprove their portfolio this year; 27 percent think it will hurttheir portfolio.

|

The BlackRock survey results contrast with the poor retirementprospects of many Americans. Data from U.S. Census Bureauresearchers recently showed that only about one-third of employeessave in a 401(k) or similar tax-deferred plan at all. Anothersurvey, of 800 people 25 and older, by phone, found enoughpessimism to conclude that “Americans are united in theiranxiety about their economic security in retirement.” In that poll,commissioned by the National Institute on Retirement Security, morethan two-thirds of people fear that economic conditionsmight hurt their chances for a secure retirement.

|

If you aren't saving enough to fund the retirement you want,perhaps because you're too optimistic about future returns, thetime to act is now, if not yesterday. The sooner you realize it,the more time you have to adjust course without making radicallifestyle changes. The tragedy is when the revelation thatyour diligent saving was at too low a rate comes late in yourcareer, when you may not have the earning potential or years leftin the workforce to make up the shortfall.

|

Consciously living below your means is one way to fend off thatprospect, said financial planner Michael Kitces, author of theNerd's Eye View blog. The fight here, he said, is against"lifestyle creep." Even clients who've had great careers struggleto get to retirement, Kitces noted. As their income grows, theirlifestyle grows with it, and they never get ahead.

|

Many of us are just too casual about the decision to introducenew expenses into our their lives, and it gets harder to shed thosenice things later. Kitces practices what he preaches, by theway."I don't know of anyone who has bought a new car and then wentback and bought a used car after that," he said.

|

So be of good cheer. But not too good.

|

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.

Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.

  • Critical BenefitsPRO information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
  • Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.