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Retirement Confidence Stuck at Historic Lows
Large majority, if auto-enrolled into plan, would stick with default rate

By Stephen Miller, CEBS  3/22/2013
 

Despite signs of economic recovery and a stock market testing new highs, Americans’ confidence in their ability to afford a comfortable retirement remains at historic lows as workers appear to be grasping the realities of what they need to save.

The 2013 annual Retirement Confidence Survey, co-sponsored by the nonprofit Employee Benefit Research Institute (EBRI) and financial services provider Principal Financial Group, found that overall confidence levels in January 2013 were essentially unchanged since the record lows set in 2011. Only 13 percent of U.S. workers are very confident they will have enough money for a comfortable retirement. A full 28 percent of workers—the highest number recorded during the 23 years of the survey—are not at all confident.

One reason for workers’ pessimism is their historically low savings rates: 57 percent of respondents  reported less than $25,000 in total household savings and investments, excluding their homes, up from 49 percent in 2008.

Workers have growing doubts about their ability to pay for basic expenses in retirement and are least confident about being able to afford medical costs and long-term care. Their lack of confidence may also stem from realizing just how much they may need to save:

  • Nearly 70 percent said they need to set aside 10 percent or more of total household income to fund a financially secure retirement.

  • Four in 10 put the target at 20 percent or more.

Moreover, the portion of private-sector U.S. workers covered by defined benefit pension plans fell to 3 percent in 2011 from 28 percent in 1979, according to U.S. Department of Labor data separately compiled by EBRI.

Immediate Concerns Take Priority

Cost-of-living and day-to-day expenses head the list of reasons why workers do not contribute (or don’t contribute more) to their employer’s 401(k) or other defined contribution retirement plan, with 41 percent of eligible workers citing these factors.

Nevertheless, if those not currently contributing were automatically enrolled into a retirement savings plan, most said they would continue the contribution in some amount:

  • Just 18 percent said they would cancel the contribution if enrolled at a 3 percent deferral rate.

  • 29 percent would cancel at a 6 percent deferral rate.

Positive Steps

Overall retirement confidence is 20 percent to 40 percent higher among workers who take positive financial actions, including calculating retirement income needs, saving in an employer-sponsored plan and getting advice from a financial professional, the study found.

Among additional findings:

  • Many still guess at savings needs. Nearly half (45 percent) of workers guess how much they need to accumulate for retirement, rather than doing a systematic calculation using tools like an online retirement income calculator.

  • Tax incentives matter. Forty-five percent also would stop or reduce the amount they contribute to their employer-sponsored plan if they could no longer do so on a pretax basis. Lower-income workers ($35,000 or less) would be much more likely to stop contributing if the tax incentive were removed. 

Retirement Security as Retention Strategy

From an employee perspective, retirement continues to be top of mind. The 2013 “Top Five Global Employer Rewards Priorities Survey” reveals that two-thirds (66 percent) of U.S. employees ranked the ability to afford retirement as their top total rewards priority. This issue is so deeply felt that more than one in three U.S. employees (34 percent) plan on delaying their retirement age.

“Calibrating talent and rewards strategies to meet generational expectations of extended employment is a step many employers and national governments should consider taking,” said Scott Cole, senior manager, Deloitte Consulting, LLP and co-author of the report. “This can also be an astute retention strategy, particularly as employees across all regions indicate they will consider leaving their current employer for another that provides better benefits or more stability.”

For survey purposes, the phrase "total rewards" was defined as all compensation, benefits, perquisites and any other direct or indirect payments to employees. Survey respondents represented a diverse cross-section of the global employer population by industry and size.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related SHRM Articles:

Digital Divide: Generations Differ in Retirement Planning, SHRM Online Benefits, February 2013

Auto Features Impact Communication, SHRM Online Benefits, August 2012

Encourage Employees to Defer Adequate Pay to 401(k)s, SHRM Online Benefits, May 2012

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SHRM Online Retirement Plans Resource Page

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