Retirement reality check: What’s causing the confidence gap among different generations?

Health care expenses consistently emerge as a major retirement planning blindspot. Among retirees who failed to adequately plan for health care costs, the study found that:

• 57% report health care being more expensive than anticipated.
• 43% discovered Medicare covers less than they expected.

With seven in 10 retirees reporting that rising cost-of-living has eroded their savings, health care expenses represent a significant financial pressure point. These insights are particularly relevant as 62% of Americans saving for retirement expressed uncertainty about whether their savings will last throughout retirement.

The wisdom of experience carries tremendous value in retirement planning. The study surveyed retirees, who have experienced both the successes and pitfalls of their own financial journeys, to gather perspective that no theoretical model can match. Their recommendations reflect insights about what truly matters for retirement security and what they wish they had prioritized earlier. For those just beginning their retirement journey, the study shows retirees emphasize foundational habits that leverage the power of time. They recommend:

• Starting savings early, even small amounts (66%).
• Maximizing employer-sponsored retirement plans like 401(k)s (58%).
• Paying down high-interest debt before focusing heavily on retirement savings (42%).
• Educating yourself about Social Security and retirement benefits (41%).
• Consulting a financial professional to create a comprehensive plan (37%).

For those within five to 10 years of retirement, the advice shifts toward:

• Paying off remaining debts like mortgages and credit cards (63%).
• Maximizing contributions to retirement accounts through catch-up provisions (43%).
• Planning for health care costs, including Medicare and long-term care (39%).
• Preparing for potential inflation and rising costs in retirement (36%).
• Practicing living on a retirement budget before retiring (35%).

Effective retirement planning evolves through different life stages. Financial professionals suggest tailored approaches:

• In your 20s. Focus on establishing strong savings habits in tax-advantaged accounts. Professionals recommend saving 15% of income (including employer matches) and investing for long-term growth to maximize compound interest benefits.
• In your 30s and 40s. Increase contributions to tax-advantaged accounts while maintaining growth-oriented investment strategies. This period is critical for building substantial retirement assets despite competing financial priorities.
• In your 50s and 60s. Utilize catch-up contributions, diversify investments to reduce risk and develop a specific retirement income plan. The transition from accumulation to distribution requires careful planning to ensure sustainability.

Social Security stands as the most important income source for American retirees. Approximately 60% of retired Americans report Social Security as a "major source" of their retirement income, making it the bedrock of their financial security, according to a Gallup poll. Social Security, however, typically provides only about 30% of the average retiree's income. For most American retirees, financial security depends on a combination of income sources, with some playing more significant roles than others.

Retirement plans like 401(k)s and traditional pensions represent the second most important income source. Though traditional pensions have declined significantly, reports the Pension Rights Center, they still provide substantial income for those fortunate enough to have them, typically replacing 50-85% of working income. For most contemporary retirees, defined contribution plans like 401(k)s have replaced pensions, requiring more active management but offering greater flexibility.

Investment income from IRAs, brokerage accounts and bank savings constitutes the third major income pillar, according to Morningstar. Dividend-paying stocks, bonds and certificates of deposit provide both regular income and potential growth to combat inflation.

Many retirees supplement their core income through part-time work, with nearly half of Americans aged 60-75 planning to work during retirement, according to a survey by TransAmerica Center for Retirement Studies. Home equity remains another significant potential income source, especially for long-term homeowners, reports the Boston College Center for Retirement Research.

Planning challenges vary by generation but include consistent themes. Among the most common obstacles listed in the Fidelity survey:

• For Gen X, it’s balancing current expenses with retirement savings (30%), estimating retirement income needs (26%) and dealing with inflation (37%).
• For boomers, handling inflation and rising living costs (47%) ranks highest, followed by saving enough overall (36%).
• Women face additional challenges, with more reporting difficulties managing unexpected life events like family emergencies (27% women vs. 23% men).

Research by financial organizations and academic institutions provides valuable insights about how Americans perceive retirement. By learning from retirees' experiences and understanding the specific challenges faced by different demographic groups, future retirees can make more informed decisions. Research clearly shows that early planning, consistent saving debt management and health care preparation are elements of retirement success. For those at any stage of the retirement planning journey, the message is clear: Start where you are, leverage available resources and develop strategies that address both current financial needs and long-term security. Whether you're a Gen Z worker just beginning your career, a Gen X "sandwich generation" member balancing multiple financial priorities, or a baby boomer about to enter retirement, taking proactive steps today can significantly impact your retirement outcomes.