American workers have a confidence problem regarding their retirement. Debt, lack of a retirement plan at work and low savings are among the key factors putting them in a funk.
While 60 percent of workers share some optimism about their retirement, that number is falling, according to the 2017 Retirement Confidence Survey, an annual joint effort conducted by the Employee Benefit Research Institute (EBRI) and Greenwald & Associates.
In developing research for “The 2017 Retirement Confidence Survey: Many Workers Lack Retirement Confidence and Feel Stressed About Retirement Preparations,” EBRI and Greenwald & Associates conducted online interviews with more than 1,000 workers and nearly 600 retirees earlier this year.
The 27th iteration of the study found overall confidence levels dropping back to 2014 levels with workers feeling increasing stress about their retirement planning, financial planning and health care.
In fact, half of those workers surveyed said they would be more productive at work if they didn’t spend so much time worrying.
Not very confident
“The percentage of workers who feel very confident in being able to afford a comfortable retirement is low,” says Craig Copeland, EBRI senior research associate and co-author of the 2017 Retirement Confidence Survey. “Furthermore, many workers are worried about retirement issues and their personal finances.”
Debt is a drag for many workers and confidence experiences a significant drop for those with debt issues. Copeland says that workers who feel their debt is a major problem have notably lower retirement confidence (32 percent are very/somewhat confident versus 78 percent among those who say debt is not a problem), while those who have a retirement plan have markedly higher confidence (71 percent very/somewhat confident versus 33 percent among those who do not have a retirement plan).
A planning problem
“I continue to be struck by the relatively small share of workers who do formal retirement planning,” says Lisa Greenwald, assistant vice president of Greenwald & Associates, and co-author of the report.
“Use of a financial advisor increases with age and income, but just 23 percent of workers say that they have spoken with a professional advisor about retirement planning and only 1 in 10 report they have prepared a formal plan for retirement,” says Greenwald. “Some of these critical retirement planning steps don’t cost workers anything, like estimating Social Security or thinking through what your expenses may be in retirement.”
Heavy about healthcare
Workers are far less confident than retirees about being able to afford healthcare in retirement. Roughly half of workers (54 percent) say they’re very or somewhat confident about being able to afford medical expenses in retirement (versus 77 percent of retirees). Workers are also less confident than retirees that Medicare will continue to provide the same level of benefits that retirees receive today (38 percent of workers versus 52 percent of retirees).
Working Americans feel they will have to postpone retirement in order to reach their financial goals. (Thinkstock.)
Retirement confidence remains strongly related to retirement plan participation, whether in a defined contribution (DC) plan, defined benefit (DB) plan, or individual retirement account (IRA). Workers reporting they or their spouse have money in a DC plan or IRA or have benefits in a DB plan from a current or previous employer are more than twice as likely as those without any of these plans to be at least somewhat confident (71 percent with a plan versus 33 percent without a plan).
Greenwald says workers who participate in a retirement plan are 10 times more likely to be currently saving for retirement (74 percent with a plan versus 7 percent without). These workers have significantly more in savings and investments than do those without a plan.
The difference is startling: Two-thirds of workers without a retirement plan (67 percent) report having less than $1,000 in savings and investments, compared with just 9 percent among workers with a retirement plan.
When workers without plans finally beginning thinking about starting one, the hill they have to climb seems insurmountable, and they believe they will have to work later and later in life and live less comfortably.
Related: 5 signs of employee financial stress
According to the report: “Six in 10 (57 percent) believe they will need to retire later and nearly as many (54 percent) say they will need to save more later. More than half believe that saving less than is needed will mean they will have less to live on in retirement and will have less money for travel or entertainment (54 percent each). Half of those who say they are saving less than they need say they plan to work in retirement (50 percent).”
A savings incentive
Nearly 3 in 4 workers (73 percent) not currently saving for retirement say they would be at least somewhat likely to save for retirement if contributions are matched by their employer. Approximately two-thirds of non-saving workers say they would be likely to save for retirement if automatic paycheck deductions with the option of changing or stopping them, at either 3 percent or 6 percent of salary, were used by their employer.
A silver lining
The good news is working with an advisor and developing a formal plan can drive confidence up. Actually getting to retirement also helps.
According to Greenwald, once in retirement, Americans feel much more bullish about their golden years. Given an opportunity to pay the bills on a fixed income, they see they can make ends meet.
“Almost 80 percent of retirees report feeling either very or somewhat confident about having enough money to live comfortably throughout their retirement years,” says Greenwald. “including one-third of retirees who feel very confident.”