Confidence in retirement security is up, according to EBRI’s 24th annual Retirement Confidence Survey, but the organization was reluctant to declare victory. Although more Americans reported feeling confident in 2014 than in the last five years, EBRI did not find they’re more prepared.
The survey found 37% of Americans are at least somewhat confident about their ability to retire comfortably, with 18% saying they are very confident, up from 13% last year. However, the percentage who said they were not at all confident is statistically unchanged at nearly a quarter, according to the report.
On the bright side (and not very surprising), the survey found confidence is higher among those who participate in a retirement plan, either through their workplace or in an individual account.
“When we compare the shifts in confidence between the 2014 and 2013 surveys, the increase in confidence was almost exclusively among those with a retirement plan,” Jack VanDerhei, research director for EBRI, said on a call discussing the results on Tuesday.
However, savings are still low and few respondents reported taking basic steps to prepare for retirement. The survey found 35% of workers have not saved any money at all for retirement, and only 57% are actively saving.
“Beyond participation in a retirement plan, there appeared to be no significant behavioral change to account for the change in confidence,” VanDerhei said. “Indeed, many clear warning signs about Americans’ lack of preparation for retirement have not changed. In aggregate, workers were no more likely to have done a retirement needs calculation, to have saved for retirement or to report savings amounts significantly larger than that captured in 2013.”
Greg Burrows, senior vice president of retirement and investor services for The Principal, spoke about the survey results in an interview with ThinkAdvisor on Monday. He noted how important it is for workers to assess what their actual retirement needs will be, rather than just guessing.
“One thing we look at is the percentage of workers using calculators, and still only about 44% use them, which means over half are still guessing at what their needs are,” Burrows said. “Amongst our clients and participants, we find that those who use retirement calculators, 40% of them take positive action and on average they’re saving about 40% more.”
Almost half of workers without a retirement plan said they were not at all confident about their retirement prospects, compared with about one-tenth of people who do have a plan.
Not only are those without a plan worried about their retirement, they’re not showing any improvement. Among workers who have a retirement plan, those who reported feeling very confident nearly doubled from 14% in 2013 to 24% this year, while those without a plan dropped one point to 9%.
The bad news keeps piling up for workers who don’t have a retirement plan. EBRI found that almost three-quarters of those who say they or their spouse don’t have a plan have less than $1,000 in total assets saved.
Burrows noted that percentage of workers with such meager savings has increased over the past five years by more than 50%. “There’s a disconnect between an awareness of the need to save versus the action behind the saving itself,” he said. “We’d recommend people really concentrate on understanding their expenses so they can make saving part of their lifestyle and they can think about savings as a consumption item to incorporate in their planning process.”
The worst part is workers know they need to save more. More than 20% of workers said they needed to save at least 30% of their income. Almost a quarter of those without a retirement plan said they needed to save at least 50% or that they had no idea how much they should be saving.
EBRI credited the confidence boost to market improvements.
“One possible reason for the improved confidence is the rising stock market and property values, and to the extent that those factors carry forward to retirement savings account balances, there may be merit to that assessment,” VanDerhei said.
Mathew Greenwald, president of Mathew Greenwald & Associates, which conducted the survey for EBRI, agreed with the assessment that economic improvements drive investors’ optimism. “It appears that people make some assumptions about how financially secure they will be in the future based on how well the economy is performing now,” he said on the call. However, “with economic conditions being somewhat cyclical, this obviously is not a good way of making judgments or predictions about the future.”
There were the same familiar obstacles to saving—cost of living, day-to-day expenses—but the study found debt is another major impediment. Of workers who said debt was a major problem for them, just 3% said they are very confident about their ability to retire. By comparison, 29% of workers who said debt was not a problem reported feeling very confident.
Debt affects retirees, too. Forty-four percent of retirees said they were uncomfortable with their level of debt. Nearly 60% of workers agreed.
Burrows urged advisors to work with their clients on a budget to identify where they can cut back and address problems with debt.
“I can’t emphasize enough the importance of understanding the expense side of the ledger in order to put yourself in a position to save,” he said. “Saving’s not an easy thing. It’s not unlike a diet. When you start a diet you think about what you eat and monitoring what you do. With more information, people can be in a better position to make decisions that might be helpful to them. It really does start with some of the basics. We understand that the basics can be really hard, but they’re really important, especially over the long term.”
Another troubling finding in the 2014 survey is that current workers may rely too much on their chances of just working longer if they reach retirement age and don’t have enough. Two-thirds of workers said they plan to work for pay in retirement. However, only 27% of retirees said they do so.
“We seem to be in the midst of a redefinition of retirement,” Greenwald said. “The biggest shift we have seen in the 24 years we have conducted the Retirement Confidence Survey is the movement of workers toward planning to work later in life.”
Greenwald noted that in 1991, 84% of workers planned to retire at 65 or younger, and just 9% planned to work to 70. Now, 50% plan to stop by age 65 and 22% plan to work until at least 70. Furthermore, “Even with the planned delay in retirement, three in four expect that either they or their spouse work for pay after they retire.”
Greenwald said that this represents a “change in the very life course” for many people. “The goal of retiring reasonably young and enjoying retirement when they’re, as they say, ‘young enough to enjoy it’ is being replaced by an expectation by many of working to an age that has been considered by many to be fairly old.”
That’s a consistent theme among workers, too, according to Burrows. “Where advisors can be very helpful when they build a long-term plan is to not necessarily depend on being able to work in retirement as the backbone of their retirement strategy. Let that be a bonus to a retirement strategy.” Burrows noted that more than 60% of retirees indicated they couldn’t work in retirement for their own personal health reasons or those of a family member.
A Gallup survey conducted last spring found that, on average, current retirees left the work force at 61.
VanDerhei said that with proposals to alter the limits and tax preferences currently provided to workplace plans this year, respondents were asked how they would respond if the law was changed so they could no longer contribute to retirement plans on a pre-tax basis. “Perhaps responding to their already expressed sense of shortfalls or concerns about the future tax environment, two-thirds say they would continue to contribute at their current rates, though 10% indicate they would reduce the amount they contribute and 5% say they would quit contributing altogether,” he said.
EBRI released the 2014 Retirement Confidence Survey, conducted in January by Mathew Greenwald & Associates, on Tuesday. The survey is based on information gathered in 20-minute phone interviews with 1,000 working Americans and 501 retirees.