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 A new survey of retirement confidence published on Tuesday confirms
that many workers lack realistic plans for making ends meet in
retirement. It also suggests there is a disconnect between
Americans' confidence about retirement and their actual preparations
to ensure a comfortable one.
The Retirement Confidence Survey published by the Employee Benefit
Research Institute (EBRI) is the longest-running annual survey of
retirement confidence among both workers and today’s retirees - this
is the 26th annual edition. It provides a long view of how we are
doing as a country in preparing for retirement, and this year’s
survey does contain some encouraging news.
EBRI found that the percentage of workers who are confident about
having enough money for a comfortable retirement has continued to
recover from the record lows following the Great Recession.
Twenty-one percent are very confident this year, compared with 13
percent in 2013. Those who are somewhat confident rose to 42
percent, up from 38 percent in 2013.
So that means 63 percent of those surveyed have some degree of
confidence. But here is the problem - many people are just guessing.
Only 48 percent of workers say that they or their spouse have ever
tried to calculate how much they will to have save to live
comfortably in retirement. That percentage has not budged
significantly since the recession’s onset in 2008. Just 19 percent
of those over age 55 have a formal, written financial plan for
retirement.
Moreover, some of the plans people are making may not be realistic.
For example, 65 percent of workers say they think they could get
along with less than half of their pre-retirement income - yet most
retirement planning experts suggest a replacement rate of 70 to 80
percent. “People do a poor job of understanding how much they will
need for a retirement that could last a long time - and many don’t
understand the basics of what their expenses will be in retirement,”
said Matthew Greenwald, president of Greenwald & Associates, which
conducts the survey for EBRI.
UNJUSTIFIED CONFIDENCE
Also troubling is the reliance workers are placing on their ability
to generate income from work at the end of their careers and in
retirement. That may reflect the increasing aspiration to reinvent
retirement, or simply never retire at all.
But work cannot always be counted on as a pillar of financial
support in retirement. Two-thirds of workers told EBRI that they
plan to supplement their income in retirement with paid work -
compared with just 27 percent of retirees who report that they
actually have worked for pay in retirement. And 46 percent of
today’s retirees told EBRI said that they retired earlier than
planned - a figure that has held steady in the EBRI survey for many
years.
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The survey findings also suggest that workers are not making smart
decisions about timing their claims for Social Security.
Seventy-three percent say they are very or somewhat confident in
their ability to decide when to claim Social Security - yet Social
Security Administration data consistently shows that roughly 40
percent of workers file for benefits at age 62, the earliest age of
eligibility, rather than waiting at least until their full
retirement age (currently 66).
Although there is certainly no single correct time to claim
benefits, it is to most people's advantage to wait at least until
the full retirement age, since the delayed retirement credit
delivers roughly 8 percent higher benefits annually for each 12
months that one waits. The delayed credit is especially helpful to
married couples if the higher-earning spouse delays his or her
claim.
EBRI also found that the percentage of American workers who have
little or no retirement saving remains stubbornly high. Fifty-four
percent have saved less than $25,000 - and within that group, 26
percent have less than $1,000.
The saving levels are better for older workers, who have had more
time to save. Among workers aged 55 or higher, 30 percent have saved
more than $250,000, and 15 percent have between $100,000 and
$249,000. But even within this older group, 33 percent have saved
less than $25,000. That means many retirees will be entirely reliant
on Social Security, which replaces 39 percent of preretirement
income, on average. It also means that a significant portion of
retirees will have no cushion to meet emergency expenses, aside from
the equity in their home.
What accounts for the disparity between retirement confidence and
actual preparation? Over time, confidence levels have moved in
tandem with macroeconomic trends, said Greenwald, rather than
individual household balance sheets. Confidence levels peaked in
2000 before the tech bubble burst, and stayed relatively high until
the recession - and they fell after that. The recovering economy is
making people feel better, but that may not be justified, he said.
“The actual behavior doesn’t indicate that the confidence is
justified,” he said.
(Editing by Matthew Lewis)
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