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Retirement News
Companies Reduce Retirement Benefits, But Workers
Not Adjusting to Prepare
Workers dont realize how much Medicare, Medigap
insurance, and prescription drugs will cost them in retirement
April 11, 2007 There is a steady flow of research
that keeps finding Americans are not really preparing financially for
their retirement years. The new Retirement Confidence Survey, the 17th
annual, finds that although companies are reducing retirement benefits,
employees are not making adjustments to assure adequate funds for
retirement. But, they are still confident they will have enough.
A large percentage of American workers recognize
the U.S. retirement system is undergoing major changes, but many are not
adapting in ways that are likely to leave them well- positioned for a
comfortable retirement, according to the RCS.
The survey, released today, is sponsored by the
nonpartisan Employee Benefit Research Institute (EBRI) and Mathew
Greenwald & Associates, a survey research firm. Highlights include:
● The RCS finds pension-plan changes by employers
have left nearly half of workers less confident about the benefits they
will receive from a traditional pension plan, but that those
experiencing a decline in retirement benefits often fail to react
constructively. Among workers who have personally experienced reductions
in the retirement benefits offered by their employer, nearly 2 in 5
indicate that they have done nothing in response to these reductions.
● Many workers are counting on employer-provided
benefits in retirement that are increasingly unavailable. Forty-one
percent of workers indicate they or their spouse currently have a
defined benefit pension plan, while 62 percent say they are expecting to
receive income from such a plan in retirement.
● Almost half of workers saving for retirement
report total savings and investments (not including the value of their
primary residence or any defined benefit plans) of less than $25,000.
The majority of workers who have not put money aside for retirement have
little in savings at all: 7 in 10 of these workers say their assets
total less than $10,000.
"We have known for decades that major changes were
taking place in the U.S. retirement system," said Jack VanDerhei, a
Temple University professor, EBRI fellow, and co-author of the 2007
Retirement Confidence Survey.
"This year, we found that a substantial number of
workers realize that the shift from traditional pensions to 401(k) plans
affects them personally. Unfortunately, only 24 percent of those
affected indicate that they will save more on their own, and only 8
percent indicate that they will save more in the employer's plan as a
result of these changes.
EBRI research suggests that the vast majority of
employees are likely to need some type of additional savings if they
hope to end up with the same amount of retirement savings they would
have expected prior to the change."
"The cost of health care for future generations of
retirees will represent a huge burden, especially given the financial
problems facing Medicare," said Mathew Greenwald, president of the firm
that co-sponsored the survey.
"It seems clear that workers do not understand how
much Medicare, Medigap policies, and prescription drugs will cost them
in retirement. Most are not accumulating enough money to even cover the
insurance and health care costs they are likely to face in retirement."
The RCS, begun in 1991, is the country's most
established and comprehensive study of the attitudes and behavior of
American workers and retirees toward all aspects of saving, retirement
planning, and long-term financial security. Full survey results appear
in the April 2007 EBRI Issue Brief, available at
http://www.ebri.org/
Here are details of some of the key survey
findings:
Confidence:
Americans generally are quite confident they will
have enough money to live comfortably throughout their retirement years.
This year, 72 percent were either very confident (30 percent) or
somewhat confident (42 percent) of having enough money for a comfortable
retirement. That is statistically the same as the 70 percent who were
either very confident or somewhat confident in 2006.
However, changes in the employer pension system
that have taken place in the last five years have left a total of 45
percent of workers either a little less confident (27 percent) or much
less confident (18 percent) about the amount of money they will receive
from a traditional pension from an employer. Sixteen percent said they
were much more or a little more confident about receiving money from an
employer-provided traditional pension. The rest were just as confident
as five years ago.
The survey showed that nearly 1 in 5 workers or
their spouses (17 percent) experienced a cut in the level of retirement
benefits from an employer plan in the last two years. Seventy-one
percent of workers and their spouses experienced no decrease in the last
two years. The finding comes against a background of many employers
switching from traditional defined benefit pensions to defined
contribution plans (typically 401(k) plans) in recent years.
Investment Advice, Internet Use:
Congress last year allowed companies that manage
employer-sponsored retirement plans to offer investment advice to
workers -- a recognition that 401(k) plan participants have to make a
number of decisions, such as whether to participate in the plan, how
much to contribute, how to invest the contributions, and what to do with
the money if they change jobs or retire.
If this service were available at a modest cost,
just over half of workers (54 percent) said they would be very likely or
somewhat likely to take advantage of it, while 43 percent said they
would not be too likely or not likely at all to take it.
However, of those workers who said they would be
likely to ask for personalized investment advice, two-thirds (66
percent) said they would implement only the recommendations that were in
line with their own ideas. Only 21 percent said they would implement all
of the recommendations, as long as they came from a trusted source.
Asked what they expect will be the largest source
of retirement income, 28 percent of workers named a 401(k)-type plan,
compared with 13 percent of workers who said a traditional pension or
cash balance plan. In contrast, 21 percent of retirees said a
traditional pension is their largest source of retirement income,
compared with 6 percent who said a 401(k)-type plan.
The survey also found that many workers have
reservations about using the Internet for financial activities. More
than half said they are very or somewhat comfortable with the
comparatively anonymous activities of obtaining information about
financial products (54 percent) or using calculators (54 percent)
online. But fewer said they are comfortable shifting money from one
account or investment to another online (43 percent), obtaining advice
from financial professionals online (34 percent), or purchasing
financial products online (29 percent).
Retiree Health Gap:
Many current workers may not have a realistic
estimate of the amount workers will need to pay for health care, nursing
home care, and prescription drugs when they retire, the survey showed.
Nearly one-third of workers (32 percent) estimated they and their spouse
will need to accumulate less than $100,000 for retiree health costs and
more than half (52 percent) put this figure at less than $250,000.
One recent EBRI study calculated that, assuming
Medicare benefits remain at current levels, couples will need
approximately $300,000 to cover health expense in retirement if living
to average life expectancy, and as much as $550,000 if living to age 95.
In the 2007 survey, 35 percent of current retirees
said they had long-term care insurance. But other studies (not using
self-reported results) show that only about 10 percent of Americans age
65 and older actually have that kind of insurance.
Employers have been eliminating retiree health
benefits (and access to the benefits) in recent years because of rising
costs, but more workers and their spouses said this year they expect to
receive retiree health insurance paid for at least in part by an
employer -- 31 percent, compared with 26 percent in 2006.
Also, the number who said they do not expect to
receive any retiree health insurance from an employer declined this year
to 53 percent from 58 percent in 2006.
Editors Notes:
The 2007 Retirement Confidence Survey is based on
telephone interviews using random digit dialing conducted in January
with 1,252 Americans ages 25 and older. The margin of error for all
respondents is plus or minus 3 percentage points. EBRI is a private,
nonprofit research institute based in Washington, DC, that focuses on
health, savings, retirement, and economic security issues. EBRI does not
lobby and does not take policy positions. Web:
http://www.ebri.org/
Underwriters of the survey include 30
organizations (ADP, AIG, Alliance Bernstein, Allstate, American Express,
Ameriprise Financial, Inc., Barclays Global Investors, Buck Consultants,
CitiStreet, Deere & Company, Diversified Investment Advisors, Financial
Engines, Genworth Financial, Hewitt, IBM, ELM Income Group, Investment
Company Institute, Lincoln Financial Distributors, Mass Mutual Financial
Group, Merrill Lynch, Northrup Grumman, Principal Financial Group,
Procter & Gamble, Rockefeller Foundation, Russell Investment Group,
Segal Company, Society for Human Resource Management, State Street
Corp., Towers Perrin, Vanguard Group) and Charter Partners of the
American Savings Education Council (AARP, Fidelity Investments, InCharge
Education Foundation, ING Direct Kids Foundation, MetLife, Nationwide
Financial Services, Prudential Retirement, State Farm Insurance
Companies).
Source: Employee Benefit Research Institute
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