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Retirement Plans Filled with Holes for Many Americans
Haven't saved enough and underestimate their needs
April 11, 2006 - A large majority of Americans expect to enjoy a
comfortable retirement, but many have not taken the actions needed to
turn their aspirations into reality and face the prospect of having to
work far longer than they expect, according to the 16th annual
Retirement Confidence Survey. The survey, released today, showed many
Americans’ retirement expectations are like a piece of Swiss cheese—full
of holes.
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For example, many have accumulated only modest retirement savings,
underestimate the share of their pre-retirement income they are likely to
need in retirement, and have made no estimate of how much they will need
to live comfortably once they retire.
Still, 24 percent of survey respondents said they are very confident
they will have enough money to live comfortably in retirement and
another 44 percent said they are somewhat confident.
The total of more than two-thirds (68 percent) of current workers
expressing some level of confidence in their retirement prospects was
statistically unchanged from a year ago, but came in the face of a
recent series of widely publicized announcements of companies ending or
limiting their traditional pension programs and retiree health promises,
a development that could have affected retirement confidence.
Many workers are counting on employer-provided benefits in retirement
that are increasingly unavailable. Only 40 percent of workers indicate
they or their spouse currently have a defined benefit plan, yet 61
percent say they are expecting to receive income from such a plan in
retirement.
“Recent research has found that when a ‘traditional’ pension is frozen,
many workers in the pension are unlikely to get an equal benefit value
contributed to their 401(k) plan,” said Jack VanDerhei, a Temple
University professor, EBRI fellow, and co-author of the Retirement
Confidence Survey. “Each case is different, but it’s clear that people
currently working should factor into their retirement planning the
long-term trend away from ‘traditional’ defined benefit pensions and
toward 401(k)-type plans.”
He
added: “We find there are a lot of people who need to be saving more
than they are, if they hope to be able to afford a comfortable
retirement.”
The Retirement Confidence Survey (RCS), begun in 1991, claims to be 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. Survey results
appear in the April 2006 EBRI Issue Brief, available at
www.ebri.org. The survey is sponsored by EBRI and Mathew Greenwald &
Associates, a survey research firm, and is underwritten by the Principal
Financial Group.
Here are some of the survey results that suggest holes in Americans’
retirement hopes:
● Saving: More than two-thirds (68 percent) of current workers
say they and their spouses have accumulated less than $50,000 in
retirement savings. Not surprisingly, this modest level of saving is
more prevalent among younger workers: 88 percent of workers ages 25–35
have less than $50,000 saved for retirement, compared with 52 percent of
workers ages 55 and older.
● Health care costs: Nearly 6 in 10 (58 percent) of current
workers say they and their spouses do not expect to receive any health
insurance from their employers when they retire. Recent EBRI research
showed that individuals age 55 who live to age 90 would need to have
accumulated $210,000 (by age 65) to pay for insurance to supplement
Medicare and out-of-pocket medical expenses in retirement—far more than
all but about 10 percent of workers currently have saved for all
retirement expenses.
Not surprisingly,
older workers are more likely to
have the retirement assets to pay those costs: 25 percent of workers age
55 and older say they have accumulated more than $250,000 in retirement
savings, compared with 12 percent for those 45–54 and 4 percent of
workers ages 25–34.
● Longevity: Two-thirds (66 percent) of current workers think
they have some chance that they will live until age 90—or spend 25 years
in retirement, assuming they retire at age 65.
Furthermore, 41 percent
of current workers think that they have some chance of living until at
least age 95—or 30 years of retirement, assuming retirement at age 65.
However, 58 percent of current workers think they will have less than 25
years of retirement and another 19 percent are unable to estimate how
long their retirement will last.
These findings suggest many workers may
not be planning and saving enough to finance the full amount of time
they expect to spend in retirement, thereby increasing the odds that
they will outlive their retirement savings.
● Income replacement: Fourteen percent of current workers said
they thought they would need less than 50 percent of their preretirement
income to live comfortably in retirement and another 36 percent expected
to need 50– 70 percent. However, 62 percent of current retirees say
their income is 70 percent or more of their preretirement income.
● Planning: Nearly 6 in 10 current workers (59 percent) said they
hope to have a retirement standard of living equal to or higher than in
their working years. But when current workers were asked if they or
their spouse have calculated how much money they will need to retire
comfortably, nearly 6 in 10 (58 percent) said no. And of those who did
do a retirement calculation, 8 percent said they arrived at an answer by
guessing.
“We know that more people will live longer in retirement, but also that
more retirees will have longer periods of time when they can travel,
spend, and enjoy due to lower levels of chronic disability among the
elderly,” said Dan Houston, president of the firm that conducted the
survey. “What a shame it would be if the health constraints that many
older people faced were replaced by financial constraints due to lack of
proper planning.”
The survey provides a wide range of responses to other questions,
including: How much have Americans accumulated for retirement, and how
much do they think they will need to accumulate? What share of employers
match workers’ 401(k) contributions? How much of workers’ retirement
savings are in 401(k) plans? What are workers’ expectations about
whether they will receive Social Security and Medicare benefits of at
least equal value to benefits received by retirees today?
In
addition, the 2006 RCS found strong support for automatic enrollment in
a 401(k) plan for new workers so as to boost participation in a
retirement plan: About two-thirds of employed workers favor automatic
enrollment (69 percent), with a slightly smaller amount (65 percent)
supporting automatically increasing the percentage of salary contributed
when a pay raise is received (65 percent).
Plan participants and nonparticipants were equally likely to favor each
of these automatic features. About half of all workers (48 percent)
reported they receive employerprovided retirement education; of those,
almost a third (29 percent) report modifying their retirement planning
as a result of the material they receive and are more likely to do a
retirement needs calculation.
Overall, the survey found American workers’ confidence in their
retirement prospects was virtually unchanged this year from 2005: 24
percent of current workers said they were very confident this year,
statistically unchanged from the 25 percent measured a year ago. In
addition, 44 percent of current workers were somewhat confident this
year, compared with 40 percent in 2005.
The number saying they were very confident has remained fairly steady
over the last decade. The 10-year high was 25 percent for workers; the
low over the decade was 19 percent (in 1996). The number of workers
saying they are not at all confident has varied over the past decade
from 9 percent (in 1999) to 17 percent (in 2001 and 2005).
About the study:
The 16th Retirement Confidence Survey was based on 21-minute telephone
interviews with 1,252 individuals age 25 and older in the United States.
The interviews were conducted in January. The margin of error for the
overall survey is plus or minus 3 percentage points.
Related Links:
●
www.ebri.org
●
www.principal.com
●
Jack L. VanDerhei, Ph.D., Bio
●
2006 Retirement Confidence Survey (pdf)
●
2006 RCS Fact Sheets (pdf)
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