Most public service employees were influenced in their career choice by the promise of a robust public service pension, and many are now deeply worried about their future financial security, according to a newly released survey sponsored by Prudential Retirement.
The survey also found that most public servants have taken only the most basic steps to safeguard their long-term financial well-being.
The Economist Intelligence Unit conducted the survey in March of 1,877 public sector workers with varied backgrounds, functions and lengths of tenure throughout the U.S. The survey sample included baby boomers, Gen Xers and millennials.
Only 17% of survey respondents said they were “very confident” they would not run out of money in retirement, and even fewer were certain they could cover all of their medical expenses.
At the same time, 64% said a government pension had been a significant factor in their choice of public service employment. Fifty-eight percent expected a defined benefit plan to be one of their two primary sources of income in retirement, and 42% said a defined contribution plan. Only one-quarter planned to rely heavily on Social Security.
Prudential Retirement said this raised questions about how states and municipalities forced to cut back pensions will attract talent in the future.
It noted that U.S. public pension funds at all levels of government are dealing with a payout shortfall of some $3.4 trillion, citing an estimate by Stanford University’s Hoover Institution think tank.
In order to improve their pension positions, it said, virtually every state between 2009 and 2013 applied some combination of lower benefit accruals and higher employer contributions made possible with the federal government’s help. Higher employee contributions also became commonplace.
“Those who devote their lives to public service deserve a secure future,” Scott Boyd, head of tax-exempt markets for Prudential Retirement, said in a statement.
“Our survey highlights the need for the public sector to offer financial wellness solutions that address the retirement security issues of their workers.”
Most public employees in the poll believed that they were sufficiently knowledgeable to successfully manage their money over the long term. The data suggest otherwise.
About one-third of respondents said they were very confident about making financial planning decisions that will best provide for their future, and 81% were at least somewhat confident.
Although respondents said they planned to save (or were saving) for retirement, many appeared uncertain how best to make their money last, let alone grow. Fewer than one-third felt very confident about where to place retirement savings, and just 18% said they felt very confident in their ability to manage their investments wisely.
Barely half of U.S. public workers surveyed reported adhering to a budget, although an additional 29% said they planned to do so. The survey found this a recurring theme.
Only half of respondents said they had created an emergency fund to cover a job loss or disability, albeit a greater proportion than the 29% who said they had a cushion to deal with unexpected expenses.
Furthermore, relatively few had addressed their future financial requirements beyond a basic level.
In key financial planning areas, the proportion of those who had taken action was only about half of those who said they wanted to do so. Fewer than a third reported that they had consolidated their debts or evaluated different financial products for their ability to help them reach their retirement goals.
All these findings, Prudential Retirement said, underscored a need among public workers to face their financial challenges head-on. What is stopping them?
One possible explanation, the survey found, was a lack of sophisticated financial skills among public employees.
The survey asked four questions to assess financial literacy, including ones about interest rates, inflation and market risk. The number of correct answers out of four:
Four correct: 34%
Three correct: 27%
Two correct: 20%
One correct: 14%
The response rate was concerning, Prudential said, because basic concepts are important for major financial decisions, such as buying a house and getting a mortgage.
“In finance if you can understand compounding interest, you’re really a long way to understanding finance,” Beck said. “And then, if you can understand risk, you’re a long way there.”
According to the survey, fewer than a third of respondents currently consulted a financial advisor. Yet significantly more of those who did so were at ease with their financial position and progress.
As well, these workers said they were much better equipped both to use the financial tools they had and to discover new ones.
The survey found public employees with advisors to be better diversified, more engaged and more comfortable than their counterparts without an advisor.
However, hurdles remain in providing support. Although most respondents understood that saving more would likely help them achieve their financial goals, only 27% thought that consulting a financial advisor would have a similarly beneficial effect.
Only one in five was prepared to consider getting further professional advice.
Prudential Retirement said public service employers needed to acknowledge that many of their workers were unprepared to save wisely for retirement, and to convey to them that expert advice can result in significant retirement savings growth.
— Check out 3 Reasons DOL Fiduciary Rule Will Stay Intact: ERISA Attorney Wagner on ThinkAdvisor.