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 The 2015 edition of the longest-running national survey of
retirement confidence, released on Tuesday by the Washington,
D.C.-based non-profit Employee Benefit Research Institute (EBRI),
reveals a second consecutive annual jump in the percentage of
workers and retirees in an upbeat mood about their retirement
finances. Unfortunately, that rising confidence is likely unfounded.
EBRI's 25th annual Retirement Confidence Survey found that 37
percent of workers are "very confident" about their ability to
achieve a comfortable retirement - double the number found in 2013.
Another 36 percent said they were "somewhat" confident.
But the survey showed little improvement in the fundamental
ingredients of successful retirement planning. In a majority of
households, the amount saved for retirement remains shockingly low
and many lack even a rudimentary understanding of how much they need
to sock away. Survey respondents also indicated an unrealistic sense
of confidence about their ability to meet healthcare and long-term
care expenses.
"There's probably a lot of false optimism there," says Jack
Vanderhei, EBRI's research director. "There hasn't been enough
change in the underlying conditions over the last two years to
justify a doubling of 'very confident' households."
The stock market's rally over that period gets much of the credit
for the increase and Vanderhei notes that the gains were found only
among workers lucky enough to be covered by some type of workplace
retirement account. But data from the U.S. Federal Reserve Board
data shows that rates of retirement account ownership are actually
falling.
U.S. workers who said they or a spouse have money in a 401(k), IRA
or defined-benefit plan were more than twice as likely (28 percent)
to be very confident about retirement as those without (12 percent).
Separate EBRI data shows that 401(k) account balances have jumped
substantially among workers who participate consistently in their
401(k) plans, and for those on the job at least 5 years, account
balances rose on average anywhere from 14 percent to 28 percent last
year.
"We know that 401(k) participants are guilty of excessive
extrapolation - they like to look at how good things have been, and
assume it will just continue that way," Vanderhei said.
Reduced worry about debt is another likely contributor to the rising
optimism as 13 percent of workers described their debt levels as a
major problem, down from 20 percent last year.
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BLEAK SPOTS
On the other hand, EBRI's quantitative data reflects a bleak
retirement outlook for many. For starters, 57 percent of workers say
the total value of their household savings and investments - not
including their primary home and any defined benefit pensions - is
below $25,000.
Within that group, 28 percent have less than $1,000 in savings. The
numbers were somewhat better for older workers nearing retirement -
for example, 23 percent of workers aged 45 and older cite assets of
$250,000 or more, compared with less than 4 percent of workers aged
25–34.
Another looming blind spot is the cost of healthcare. Healthcare
inflation has been quiet lately, but many experts expect prices for
Medicare premiums and out-of-pocket health costs to head back to
historic norms of annual 6 percent growth or more in the years
ahead.
Very few Americans have any plan to handle long-term care expenses
and small retirement balances certainly will not help. Yet there is
unfounded confidence about being able to pay for it - 14 percent are
confident they will be able to afford long-term care expenses, up
from 9 percent in 2011.
"I really can't explain why so many people are confident about their
ability to pay for long-term care," Vanderhei says. "It might be
that they think - wrongly - that Medicare is going to cover it, or
maybe they'll just spend down to indigent levels and go on Medicaid.
But there's no way this is a justifiable sense of optimism."
(The writer is a Reuters columnist. The opinions expressed are his
own.)
(Editing by Beth Pinsker and G Crosse)
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