A majority of working Americans feel confident that the stock market, now in an extended bull run, is a good place to save for retirement, but many other workers expect to fall short of their retirement savings goal, Wells Fargo reported Tuesday.

In a survey conducted for the firm by Harris Poll, 65% of respondents looked favorably on the U.S. stock market, a surge of 20 percentage points from a year earlier.

U.S. investors in a recent study anticipated that the protracted bull market would reverse course sometime this year, but so far were not getting too worked up about it. 

Sixty-two percent of participants in the new poll said they would “have enough savings to live on comfortably” throughout retirement, compared with 52% in 2016, and 46% said they would need to work until at least age 70, down from 50% last year.

“Consider the power of compounded savings and market returns for a participant with a $50,000 401(k) account balance in the beginning of 2009: That balance would be $180,000 by September of this year,” Joe Ready, head of Wells Fargo Institutional Retirement and Trust, said in a statement.

“Had investors allowed the correction to scare them off, they would have missed out on that growth opportunity.”

Harris Poll conducted 1,259 telephone interviews this summer with 1,006 workers age 30 or older and with 253 retirees.

Health Care Albatross

Less optimistic were 38% of respondents who expected their “standard of living will fall.” Wells Fargo said that health care costs appeared to be a major culprit.

Sixty-one percent of workers said health care costs prevented them from saving more for retirement, and half of retirees reported spending more than they had expected on health care.

Indeed, some 40% of workers 40 and older said health care costs and the potential for catastrophic illness was the biggest peril to their current retirement savings, while a similar proportion of those in their 30s cited job loss or not saving enough as the biggest threat.

As well, 30% of workers who were responsible for both child care and elder care cited rising health care costs as a threat to their savings, compared with only 18% of workers without such responsibilities.

The study referred to workers with dual responsibilities as the “sandwich generation,” noting that they comprise 36% of workers overall, of whom 43% are women and 30% men.

Seventy-one percent of the sandwich generation gave higher health costs as a reason for not saving more for retirement, compared with 56% of respondents not among this cohort.

Retirement Planning

The poll found that a quarter working Americans were not contributing to retirement savings through such things like a 401(k) plan, an IRA or other dedicated retirement savings plan.

For their part, those who had saved for retirement since the onset of their careers had much more set aside than those who were not consistent: a median $200,000 versus $50,000. The gap among retirees was bigger: a median $400,000 vs. $50,000.

After paying essential monthly expenses, 34% of workers said saving for retirement was their biggest financial priority, rising to 50% among workers 55 and older.

According to the survey, 30% of workers said they planned to rely heavily on Social Security during retirement, compared with 51% of retirees. Only 23% of consistent savers expected to do so, versus 35% those who were not consistent.

Asked about sources of funding for the biggest part of their retirement, 35% of respondents cited 401(k) savings, 17% Social Security and 17% pensions. Among those who contribute to a 401(k) plan, 53% said it would be the primary source of funding retirement.

Half of workers in the poll said they had actively considered developing a budget for living in retirement. A majority of workers reported having actively considered the following factors as part of their retirement planning process:

  • The age at which they can afford to retire: 65%
  • Steady monthly income from their investments: 56%
  • Health care expenses: 55%
  • The age by which they should start taking Social Security to maximize their benefits: 53%

“Even 45% of the 40-somethings in our surveys had actively considered a budget for living in retirement,” Ready said. “It’s a critical part of overall retirement planning and confidence.”

However, only 63% of workers 60 and older who have actively considered developing a budget said they had done so. The poll found that these workers, who are closest to retirement, had not considered the following factors as part of their retirement planning process:

  • Steady monthly income from their investments: 36%
  • A budget for living in retirement: 35%
  • Health care expenses: 23%
  • The age at which they can afford to retire: 22%
  • The age by which they should start taking Social Security to maximize their benefits: 13%

“Many of these elements of planning are highly controllable by the individual and can significantly impact your standard of living in retirement,” Ready said.

When Harris Poll asked where they needed the most help in planning for retirement, 29% of workers said health care expenses, 22% developing a budget for living in retirement, 15% the age by which they should start taking Social Security to maximize their benefits, 14% deciding at what age they can afford to retire and 11% developing monthly income from their investments.

What Retirees Learned

Two-thirds of poll respondents said their retirement planning process focused primarily on avoiding the mistakes they have seen others make.

Among current retirees, 36% reported that their standard of living went down once they retired, and 38% said they were not financially prepared for retirement — women less so than men.

In terms of the retirement planning process for retirees, 67% said they considered the age to start taking Social Security to maximize benefits, and 63% developed a budget for living in retirement.

In all, 49% of women workers and 37% of male ones planned to save for retirement later to make up for not having saved enough. The report noted that not saving enough now could be risky, given that 51% of retirees retired earlier than they had planned; this may complicate the plan for many by trying to make up for lost time.

“Traditionally, women live longer than men — another important dimension to consider,” Ready said. “Thinking about ways to hedge this longevity is an important consideration in retirement planning.”

These and other concerns were reflected in how U.S. workers viewed their prospects for a comfortable retirement.

On average, workers estimated that they would need a median of $750,000 to help support them through retirement. Twenty-three percent were not sure of a total amount to save or could not even estimate.

Although older workers have saved more and have made more progress towards their retirement savings goal, according to the report, even workers in their 60s or older had saved only 42% of the total amount they estimated they would need for retirement (based on median comparisons).

Two-thirds of American workers said they gave consideration to the amount of taxes they would have to pay when thinking about their retirement budget. Fifty-nine percent of workers said their income taxes would be lower in retirement, 35% said they would be higher, and 6% were not sure.

Government Priority

Sixty-three percent of workers agreed that developing a policy to provide access to retirement and savings plans for all Americans needed to be a priority for government officials.

Wells Fargo noted that as the issue of access to savings plans enters the retirement policy debate, 64% of workers in the study had a 401(k) plan or equivalent available from their employer, leaving the other 36% on their own to proactively contribute to retirement savings plans outside of work.

Eighty-nine percent of workers who reported that they had access to savings plans said they would not have saved as much for retirement if they had not had a 401(k) plan.

Among those with access to a 401(k), 88% were contributing, and 87% of these said they felt more secure about their retirement because they were doing so.

Moreover, 48% of those with access to a 401(k) plan were consistent savers, compared with 33% of those who did not have access.

People with 401(k) plans, on average, started saving for retirement age 29 versus 31 for people without access.

Workers 50 and older with access to a 401(k) plan had saved $300,000 for retirement, compared with $50,000 for those without access.

“It is clear that access to a systematic savings and investing vehicle is a potential barrier to retirement security for a third of Americans,” Ready said. “There are a number of ideas for solving this problem, and some of them involve building on an existing mechanism we know can be very effective — the 401(k) plan.”

The report said that despite the success of 401(k) plans in making retirement planning easier for working Americans, many wanted help making investment choices.

More than half of all workers surveyed who had a 401(k) plan available, and two-thirds of those in their 30s, said they would like more help with their plans to ensure they were making the best choices for their retirement.

When respondents were asked what they would do with their retirement savings if they changed jobs, 63% said they would keep their money in a 401(k) plan, while 31% said they would roll their 401(k) plan into an IRA.

“The great news here is that the majority of workers would keep their money in a tax-deferred vehicle upon changing jobs; this tells us they know better than to just cash out, which would have significant tax implications,” said Ready.

Upon retirement, 81% of workers with access to a 401(k) plan said they would prefer to stay in their plans if they could just make withdrawals from it during retirement.

“Continuing to use the 401(k) in retirement can be another option, and it doesn’t surprise me that people see the value this type of plan delivers — access to institutionally priced investments, independent fiduciary oversight, and tools and education that are designed to help them achieve their goals,” Read said.

— Check out Why Mutual Funds Are the Most Popular Investment for US Households: ICI on ThinkAdvisor.