When it comes to their retirement, 50-somethings seem to be in a state of denial about how long their retirement savings will last, according to a new study.

Although the recent economic downturn has forced pre-retirees ages 50 to 59 to consider working years longer than they had hoped, their current rate of savings is unlikely to fund the retirement lifestyles they expect, according to the fifth annual Retirement Fitness Survey from Wells Fargo & Company.

Only 23 percent of pre-retirees are saving more for retirement than they were a year ago, the survey found. Fifty-seven percent are saving the same amount, and 20 percent are now saving less. Sixty-seven percent say their expectations for retirement have changed in the past year, and 56 percent now expect to work longer by an average of three additional years.

Overall, the financial positions and savings habits of this group are insufficient to last for their expected 20-plus years of retirement.

While pre-retirees surveyed expect to need $800,000 for retirement, they have saved only $300,000 (median amounts).

Pre-retirees clearly haven’t assessed how long their savings will last in retirement. They expect to live nearly 21 years in retirement, but plan on spending nearly 10 percent of their savings every year in retirement. The industry recommendation is to withdraw no more than 4 percent annually.

People have been overly optimistic about their investment returns. When they started saving (typically in their 30s), both pre-retirees and retirees expected the value of their investments to grow by 8.7 percent each year, on average. In fact, the compound annual growth rate of the S&P 500 from 1958 through 2008 was 6.6 percent.

Despite their inadequate savings, nearly two-thirds lack any formal plans for retirement savings or spending strategies. Only 35 percent of the pre-retirees have a written plan for retirement, and of this group, only 52 percent say they updated it in the past year during the market downturn.

Less than half (40 percent) wish they had been more proactive about educating themselves about retirement preparation.

Only 34 percent “wish they had cut back more on their previous lifestyle and saved more” for retirement.

“In the wake of the severe economic crisis, we had expected to find people had become more conservative in their savings and spending behavior,” said Lynne Ford, head of Wells Fargo Retail Retirement. “We were surprised to see how few people have increased their rate of savings and how many people in their 50s have no retirement plan at all. For people in the last 10 to 15 years of their working career, the failure to have a thorough retirement plan in place is like driving while blindfolded.”

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