Workers Remain Confident About Retirement, But Are They Ready?
Today's workers will experience a retirement different in many ways from the post-work years of past generations. While most Americans realize this, many are not adjusting their planning strategies, according to the 2007 Retirement Confidence Survey (RCS), sponsored by the nonpartisan Employee Benefits Research Institute (EBRI) and survey research firm Matthew Greenwald & Associates.
Jack VanDerhei, a Temple University professor, EBRI fellow, and coauthor of the RCS, said, “This year, we found that a substantial number of workers realize that the shift from traditional pensions to 401(k) plans affects them personally. Unfortunately, only 24% of those affected indicate that they will save more on their own, and only 8% indicate that they will save more in the employer's plan as a result of these changes. EBRI research suggests that the vast majority of employees are likely to need some type of additional savings if they hope to end up with the same amount of retirement savings they would have expected prior to the change.”
Nearly half of the workers surveyed (45%) are less confident about the money they can expect from a traditional pension—18% are much less confident, and 27% are a little less confident. While 16% reported their confidence has increased, 28% said their confidence remains unchanged. Of those workers who have experienced a reduction in employer benefits in the past two years (17%), only 32% reported they are saving more to account for the loss.
Furthermore, some workers appear overly optimistic about their future benefits. Only 41% of workers reported that they or their spouse has a defined benefit plan, but 62% expect to receive income from this type of traditional pension. Fewer companies offer defined benefits today than in the past, and this declining trend is expected to continue.
A majority of workers are currently saving for retirement (60%), but less than half (43%) have tried to calculate their accumulation needs for retirement. While 66% of workers reported having saved money, at some point, for retirement, this percentage is down from 70% in 2006.
To help boost retirement savings, Congress passed the Pension Protection Act of 2006, which permits employers sponsoring retirement plans to offer investment advice to employees. While 19% of workers would be very likely to take advantage of investment advice if it were available at a modest cost, 35% would be somewhat likely, and 43% would be unlikely to use the service (21% not too likely and 22% not at all likely).
When it comes to making decisions about how to save and invest for retirement, workers use a variety of sources: 73% use written material from an employer, 64% have consulted a financial professional, 61% reference retirement plan benefit statements, 52% research on the Internet, and 49% read newspapers or magazines. Americans spent an average of 19 hours planning for retirement last year.
The RCS also looked at Americans' expectations of health care costs in retirement. Provided Medicare benefits remain at current levels, EBRI estimates that couples who live to the average life expectancy will need approximately $300,000 to cover health costs in retirement; couples living to age 95 may need as much as $550,000. Workers tend to underestimate the amount they and their spouse will need: 32% estimate less than $100,000 will be enough, and 52% estimate less than $250,000 will be enough.
Matthew Greenwald, president of Matthew Greenwald & Associates, cautioned that rising health care costs will be a significant financial burden for future retirees. He said, “It seems clear that workers do not understand how much Medicare, Medigap policies, and prescription drugs will cost them in retirement. Most are not accumulating enough money to even cover the insurance and health care costs they are likely to face in retirement.”
