In a sign that Americans are recognizing the realities they face about their chances for a comfortable retirement, the 2011 Retirement Confidence Survey (RCS) finds U.S. workers are more pessimistic than at any time in the two decades: More than a quarter (27 percent) of workers now say they are "not at all confident" about retirement, up 5 percentage points from the level measured just one year earlier.
Reinforcing that trend, the percentage of workers saying they are "very confident" of a comfortable retirement ties with 2009 at 13 percent—the lowest rate ever measured by the RCS.
The RCS is conducted annually by the not-for-profit Employee Benefit Research Institute (EBRI) and Mathew Greenwald & Associates Inc. Full results of the 2011 RCS are published in the March 2011 EBRI Issue Brief. In addition, EBRI has posted online several RCS-related fact sheets.
Dipping into Savings
The 2011 survey found that roughly a third of workers and retirees said they had to dip into their savings in 2010 to pay for basic expenses. Significantly, the RCS found that those with retirement savings—such as a 401(k) or an individual retirement account (IRA)—were far less likely than those without these accounts to tap into their savings.
"To me, these are positive findings: People are increasingly recognizing the level of savings realistically needed for a comfortable retirement. We know from previous surveys that far too many people had false confidence in the past," said Jack VanDerhei, EBRI research director and co-author of the report. "People's expectations need to come closer to reality so they will save more and delay retirement until it is financially feasible."
"Many people are planning to work longer and retire later because they know they simply can't afford to leave the work place—both for the paycheck and for the benefits," added survey co-author Mathew Greenwald, of Greenwald & Associates. "Unfortunately, many retirees also tell us they left the work force earlier than they planned, either because of health problems or layoffs. So it may not necessarily be a bad thing that those who can work longer choose to do so."
VanDerhei noted that the RCS finds that many systemic conditions are forcing Americans to redefine retirement, such as high unemployment rates; federal, state and local government fiscal crises; rising health care costs; lower investment returns; a surge in the older population that puts stress on social insurance programs such as Social Security and Medicare; longer life expectancies; and various other long-term factors.
Driving Employees to Stretch Their Savings Rate
"Americans are beginning to recognize the level of savings needed for a comfortable retirement," SHRM Online was told by Greg Burrows, senior vice president, retirement and investor services at The Principal Financial Group, which co-sponsored the survey. "Now it's critically important to take steps to improve the chances they'll have enough. Even simple actions, like calculating how much is needed for retirement and creating a plan, can increase savings," he noted.
In educating employees about their need to save, employers can target a widely held misperception. "Research tells us that individual workers increasingly believe they're going to work into their retirement years to create sufficient savings," said Burrows. "Yet only a small percentage of retirees actually are in the workforce. The top reason retirees aren't able to keep working is the decline in their own health or the health of family members. The data shows that 40 to 45 percent of retirees had to retire early because of health reasons."
Overall, "We think employers are in a good position to help employees prepare for retirement by promoting their plan and ensuring that employees have the right access, information, education and encouragement to take advantage of it," said Burrows. "Employers can do more to help drive greater participation and savings habits."
Stretching the Match
"Increasingly, we're seeing employers add automatic enrollment combined with auto escalation features," he noted. "Employers also are stretching their matching formulas to encourage individuals to save at a higher rate."
Research by The Principal Financial Group on how matching formulas impact plan participants' behavior looked at plan designs that included a:
• 100 percent employer match up to 2 percent of employees contributed salary.
• 50 percent match up to 4 percent of contributed salary.
• 25 percent match up to 8 percent of contributed salary.
"From the employer’s perceptive, the financial liability is capped at 2 percent in all three situations," Burrows explained. "However, with a formula requiring a higher percentage of contributed salary to maximize the employer match, we saw employees increasing their participation and deferral rates so they could stretch to receive the maximum benefit. Most significantly, we saw no negative impact on participation rates."
His conclusion: "Adding auto design features and stretching matching formulas can drive employees to increase their retirement savings rate."
Key Survey Findings
Among the most significant findings from the 2011 RCS:
• "Not confident" up. More than a quarter of American workers (27 percent) now say they are "not at all confident" about having enough money for retirement, up from 22 percent in 2009 and 2010, and the highest level ever measured in the 21-year history of the RCS.
• "Very confident" down. Correspondingly, the percentage of workers who say they are "very confident" about having enough money for retirement ties with 2009 at 13 percent—the lowest level ever recorded by the RCS.
• Drawing on savings. A third of all Americans (34 percent of workers, 33 percent of retirees) say they had to tap an IRA, 401(k), savings or investment accounts, or had to take a loan against those accounts, in order to pay for basic expenses. However, those who had retirement savings accounts—such as 401(k)s and IRAs—were far less likely to tap their savings than those who did not have these accounts.
Preparing for Retirement
As in previous years, the 2011 RCS continues to find that many people do not plan or save for retirement:
• Insufficient savings. While 59 percent of workers say they are saving for retirement, more than half (56 percent) say they have less than $25,000 in savings and investments, excluding the value of their primary residence and any defined benefit pension plans.
• Behind schedule. About a third (31 percent) of workers say they will need less than $250,000 to afford a comfortable retirement. Yet almost half (45 percent) are not too or not at all confident they and their spouse will be able to save as much as they think they need, and 70 percent say they are a little or a lot behind schedule in planning and saving for retirement.
• Uncertainty. Well over a third (42 percent) say they determined their retirement savings needs by guessing.
Among other survey findings:
• Paying for health care in retirement. Workers are evenly split about being confident of having enough money to take care of medical expenses in retirement (48 percent very or somewhat confident vs. 50 percent not too or not at all confident). Current retirees are sharply more optimistic on this score: 68 percent confident vs. 30 percent not confident.
• Delayed retirement. A significant number of workers (20 percent) say they now intend to retire later (at an older age) than they had planned. Of those who say they will retire later, the main reason cited was the poor economy (36 percent), a lack of faith in Social Security or the government (16 percent), a change in employment situation (15 percent) or because they can't afford to retire (13 percent).
• Forced early retirement. Confirming findings from prior years, almost half of current retirees (45 percent) say they retired earlier than they planed, mainly because of a health problem or disability.
• Trusted institutions. Workers continue to rank private employers as the most trusted institution (24 percent "very confident"); the federal government continues to rank as the least trusted (18 percent "not at all confident"). Banks, which were supported heavily by infusions from the federal government during the recent recession, ranked as the second-most trusted institution (17 percent "very confident").
Stephen Miller, CEBS, is an online editor/manager for SHRM.
More 401(k) Matching Contributions Restored, SHRM Online Benefits Discipline, March 2011
Employers Offering More Help to Meet Retirement Goals, SHRM Online Benefits Discipline, February 2011
Employees' Retirement Readiness Is Employer Priority, SHRM Online Benefits Discipline, January 2011
Despite Improvements, Most Still Unprepared for Retirement, SHRM Online Benefits Discipline, July 2010
SHRM Online Benefits Discipline