As it becomes harder and harder for middle class Americans to meet their monthly financial obligations, funding their retirement is becoming less and less of a priority; a trend that will lead to Americans working longer, which could have widespread social and economic implications for the country.
In its third annual Middle Class Retirement study, Wells Fargo found that more than half of the middle class survey respondents (59 percent) ranked their top day-to-day financial concern as paying their monthly bills, up from 52 percent the previous year. While middle class Americans struggle to meet their immediate financial obligations, saving for retirement becomes obscured.
Survey respondents ranked saving for retirement a distant second place with 13 percent calling it a priority. Priority or not, it is simply not possible for many Americans to save and meet their current financial commitments. Forty-two percent of Americans said that paying the bills and saving for retirement was not possible, which translates into 48 percent of survey respondents reporting that they are not confident they will be able to save enough for a comfortable retirement and the 34 percent that said they will work until they are “at least 80.”
Although it appears to be a struggle, roughly half (52 percent) of the middle class between 25 and 75 report that they are confident they will have saved enough to be able to retire. Interestingly, less than 30 percent of that group have a written retirement plan — a tool that financial professionals view as necessary for healthy retirement saving evident by the fact that 70 percent of those with a plan describe themselves as confident while just 44 percent without a plan feel that way.
Middle class Americans in their 30s are more aware of what it takes to have a successful retirement than Americans in their prime retirement saving years (those between 40 and 59). The reasons for this are unclear, however, it may have to do with the fact that younger people are aware of the volatility surrounding the Social Security system or have witnessed sloppy retirement planning by their older colleagues and are looking to avoid making those same mistakes. Thirty-one percent of middle class Americans between 40 and 59 have a retirement plan in place while 34 percent of those in their 30s have one.
Not having a written retirement plan may not be due to recklessness or laziness but because there are so few financial assets to manage. Forty-five percent of survey respondents reported that they did not have a financial plan because they “had so few financial assets.” Middle class Americans with earnings on the higher end of the pay scale were more likely to have a retirement plan in place, although Wells Fargo cautions that having a higher income does not necessarily correlate with having saved more for retirement.
The wavering Social Security system will play a large role in the retirement of many middle class Americans. One-third of all middle class Americans responded that Social Security will be their “primary source” of income in retirement.
The middle class is aware of the precarious position the Social Security system is in, however, with 37 percent of them responding that a loss of or diminished Social Security benefits were their greatest fears in retirement. An unexpected health care expense, however, was also a prevalent fear in retirement, with 41 percent reporting it was their greatest worry.
The stock market seems to have suffered a reputational hit among investors of all stripes since the global financial crisis, with the middle class being more acutely skeptical of it. The study found that members of the middle class, across all generations, were wary of the stock market. Twenty-four percent were confident that the stock market was a good place invest for retirement while 45 percent said the market “does not benefit people like me.”
“There is a striking amount of fear about the stock market among all investors. The middle class just isn’t making the link between investing and the potential growth of their savings, but on top of this fear is apathy — there is no interest in learning more about investing. Fear and apathy are a bad combination, whereas knowledge about saving and investing is empowering. We’ve got to move people to this mindset,” said Laurie Nordquist, head of Wells Fargo Institutional Retirement and Trust.