More workers in 2016 have faith that they’re set up for a comfortable retirement, but many of them may not realize what it really takes to achieve the retirement lifestyle they’ve imagined, according to a recent survey.
More than one in five workers (21 percent) said they were “very confident” that they will have enough money to live comfortably in retirement, according to the 2016 Retirement Confidence Survey (RCS), a joint publication of the Employee Benefit Research Institute (EBRI) and research firm Greenwald & Associates, both based in Washington, D.C. Only 13 percent expressed that sentiment in 2013, indicating improvement. However, other indicators show that workers aren’t putting enough money away to ensure that they will be able to truly enjoy their golden years.
More than half of workers (54 percent) said the total value of their household’s savings and investments—excluding the value of their home and defined benefit plans—is less than $25,000. From that group, 26 percent said they had less than $1,000 in savings.
“The amount of money American workers have saved is alarmingly low, and it’s a disturbing trend,” said Mathew Greenwald, president of Greenwald & Associates. “People do a poor job of estimating and understanding how much they need to sustain a retirement that could last a very long time.”
The situation is worse for workers who have no access to a retirement plan, said Craig Copeland, a senior research associate at EBRI. Two-thirds of those without a 401(k) or related pension plan have less than $1,000 in savings for retirement, and 16 percent have only saved between $1,000 and $10,000, he said.
“No wonder that those without a plan think they will have to wait until at least 70 to retire, or not retire at all,” Copeland said. “For these Americans, the likelihood of achieving a financially secure retirement is slim.”
EBRI and Greenwald & Associates conducted the survey from early January to early February in 2016 with 1,505 people (1,000 workers and 505 retirees) ages 25 and older in the United States. As has been the norm in the 26-year history of the RCS, retirement confidence among retirees was stronger than that of the workers surveyed—nearly two out of five retirees (39 percent) said they were “very confident” they had enough money for a comfortable retirement.
Lack of Planning Cited
Part of the problem for workers is their lack of planning, Greenwald said. The survey revealed that nearly two out of five workers (39 percent) “simply guess” at how much they will need for retirement, rather than doing a concrete calculation by using a financial advisor, worksheet or online tools, for example.
“I’m concerned about that,” he said. “Not enough workers are making an estimate of what they need, and for many of those who do make the effort, it’s still not enough.”
And many retirees quickly learn that they may have left the workforce too soon, according to separate findings from the Society for Human Resource Management’s (SHRM’s) Aging Workforce Research Initiative. The three-year research effort is funded by the Alfred P. Sloan Foundation and identifies best practices for employing an aging workforce.
Nearly three out of four HR professionals (72 percent) said that retirees come back to work for the money, and another 45 percent said retirees return to work for health care benefits. Many others said retirees come back for nonfinancial reasons as well—58 percent said the decision is based on “enjoyment/occupying their time,” and 42 percent said retirees re-enter the workforce for social interaction.
On the positive side, according to other findings from SHRM’s aging workforce initiative, these employees are also filling a void in the talent ranks. More than three out of five HR professionals (61 percent) said their organizations have attempted to capitalize on and incorporate the experience of older workers “some” or to “a great extent.”
There is growing recognition, however, that workers need more help preparing for retirement, as shown by EBRI’s survey and as evidenced in other SHRM research. More than half of employers (53 percent) offered individual investment advice to employees in 2015, up from 42 percent in 2011, according to SHRM’s 2015 Employee Benefits survey report. From that same report, nearly half of HR professionals (48 percent) said their organization offered retirement-preparation planning advice, up from just 37 percent in 2011.
“While workers and/or their spouses who have a retirement plan have much larger savings and are also more likely to have taken steps to prepare for retirement, in the aggregate, only a minority of all workers appear to be taking basic steps needed to prepare for retirement,” according to EBRI’s report.
Joseph Coombs is a senior analyst for workforce trends at SHRM.