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Record Drop Seen in Retirement Confidence

By Stephen Miller  4/11/2008

Reflecting the growing concern over health care costs and a slowing economy, American workers' confidence in being able to afford a comfortable retirement fell dramatically over the past year, according to the Employee Benefit Research Institute's (EBRI) 2008 Retirement Confidence Survey.

Among the highlights:

Active workers who are very confident of having enough money for a comfortable retirement decreased sharply, from 27 percent in 2007 to 18 percent in 2008, the biggest one-year drop in the 18-year history of EBRI's survey.

confidence in maintaining a financially secure retirement fell from 41 percent to 29 percent.

One reason employers should care that their workers are worried about the future is that financial insecurity leads to lower levels of employee engagement and satisfaction, and thus decreased retention. According to research by the nonprofit Personal Finance Employee Education Foundation (among others), financial stress can reduce workplace productivity significantly.

And in a March 2008 survey of U.S. working adults, nearly three out of four said that they are experiencing heavy levels of stress due to financial concerns, and 45 percent reported that their financial stress makes it harder for them to do their job (see Three Out of Four Employees Are Financially Stressed.)

Employers also have other reasons to encourage increased employee participation in their defined contribution retirement plans, and to provide education and advice—and adequate matching contributions—to help employees grow their retirement portfolios. Low participation by workers in their employer-provided plan means that employers miss out on increasing the percentage of compensation they provide that is not subject to FICA (Federal Insurance Contributions Act) or FUTA (Federal Unemployment Tax Act) withholding.

Also, higher participation rates will reduce the likelihood that the plan could become "top heavy" among high earners and thus fail annual compliance testing and be disqualified for tax benefits. (see Clearing the Annual 401(k) Compliance Test Hurdle.)

Confidence by Age and Income
Decreases in retirement confidence, often tied to insufficient retirement savings, occurs across all age groups and income levels but is particularly acute among young workers and those with low incomes.

Those who said they were very confident of having enough money for a comfortable retirement:


2008 survey

2007 survey

Workers ages 25-34



Workers ages 35-44



Workers with household income under $35,000



Workers with household income of $35,000–$74,999



They're Doing the Math

“If there is a silver lining, it’s that Americans finally may be waking up to the realities of being able to afford retirement,” “said a statement by EBRI President Dallas Salisbury.

For example, the survey found that:

About half of workers (47 percent) say they and/or their spouse have tried to calculate how much money they will need for a comfortable retirement, up considerably from the low point of 29 percent measured in 1996.

Doing a retirement savings calculation is particularly effective at changing worker behavior: 44 percent who calculated a goal changed their retirement planning, and of those almost two-thirds (59 percent) started saving or investing more.

Affording Today's Expenses

Still, despite their fears about retirement, employees cite the needs of today as the reason they don't save more for the future. When specifically asked what they think is their most pressing financial issue, just 5 percent of workers said it was saving or planning for retirement. Instead, most mention:

• Making ends meet or the cost of living (17 percent).

• Paying for health insurance
or medical expenses (16 percent).

Making mortgage payments
or paying for housing (16 percent).

Paying down debt or loans
(13 percent).

Fuel or energy costs
(9 percent).

Job uncertainty
(6 percent of workers).

Retirees' Health Care Worries
Among retirees, 39 percent now think they are likely to live long enough to use up all of their savings (up 10 percentage points from 29 percent in 2007). Health costs in particular were cited as a big concern:

    Although 41 percent of retirees say they currently have access to health insurance through a former employer, many employers are eliminating health care coverage for future retirees.

    Barely one-third of all workers now expect to have access to employment-based health insurance in retirement, down 8 percentage points (from 42 percent in 2007 to 34 percent in 2008).

    More than half (54 percent) of retirees who left the workforce earlier than planned say they did so because of health problems or disability.

    Almost half of retirees (44 percent) say they have spent more than expected on health care expenses.

    Measured another way, workers said they are increasingly not confident about having enough money for medical expenses (43 percent in 2008, up from 32 percent in 2007) and for long-term care expenses (54 percent in 2008, up from 44 percent last year).

The 2008 Retirement Confidence Survey was conducted in January 2008 via 20-minute random telephone interviews with 1,322 individuals (1,057 workers and 265 retirees) age 25 and older in the United States.

Stephen Miller is manager of SHRM Online's Compensation & Benefits Focus Area.

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