Older Employees' Retirement Expectations Face Headwinds

Retirement confidence is down, with fewer workplace savers seeing themselves on track to retire when they had planned, recent employee surveys show.

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Working Through
an Unstable Economy

According to a July 2022 report by investment management firm BlackRock, for instance, workers' outlook on retiring has seen "a reversal from the last few years where confidence remained steady and even increased."

Most workplace savers now say they're unsure about the economic outlook, given an inflation rate that rose 9.1 percent year over year in June. Adding to their uncertainty was a steep decline in stock market values this year, with the benchmark S&P 500 index plummeting nearly 20 percent from January through May before improving a bit to notch a 16 percent decline in 2022 as of mid-July.

Declining Retirement Confidence

Overall, 63 percent of savers felt they were on track for retirement, down from 68 percent a year ago, according to BlackRock's seventh annual Read on Retirement survey, fielded March 25-April 30, 2022.

Inflation is a key driver for the decline in confidence among more than 1,308 respondents who participate in their employer's 401(k) or 403(b) plans, with 87 percent of workplace savers reporting that they're concerned about inflation affecting their retirement, the survey showed.

Older workers may have a more realistic view of retirement expectations, BlackRock found. Nearly half of Baby Boomers said they'll need to save between $1 million and $3 million for a comfortable retirement, at least four times the amount those from Generation Z anticipate needing.

Delayed Retirements

Meanwhile, almost half (48 percent) of those who planned to retire in 2022 are reconsidering or have put that plan on hold, according to a June survey of 1,000 U.S. consumers by software-maker Quicken Inc. In addition, 25 percent of workers ages 58 to 74 who were not planning on retiring in 2022 are now considering delaying retirement even further.

"Through the end of 2021, we were in an unusual environment with plenty of jobs, a buoyant stock market and tame inflation. In 2022, it's a different story," said Eric Dunn, Quicken CEO.

Among those who are considering delaying retirement, or "unretiring" and returning to the labor force, the changing economic climate is top of mind. Respondents cited the following factors as reasons they will need to continue working:

• Inflation pushing up costs (cited by 65 percent).
• The decline in the stock market (45 percent).
• Increased interest rates for debt (30 percent).

Additionally, 12 percent said their partner's job or compensation had been negatively impacted, and they had to help fill the gap.

Even before this year's economic challenges, however, retirement ages had been rising. In 2021, the average retirement age for men in the U.S. was 64.7, roughly three years later than in the mid-1980s and early 1990s, according to a July report by the Center for Retirement Research at Boston College. The retirement age for women in 2021 rose to 62.1, up dramatically from 55 in the 1960s.

Major drivers for delaying retirement in recent decades, the researchers noted, include the shift from guaranteed defined benefit pensions to defined contribution 401(k)s and the decline of retiree health insurance, as well as extended life spans and the desire to remain active and engaged.

Rising Uncertainty

In other research, 69 percent of workers in the U.S. believe they aren't saving enough for retirement and those closer to retirement are now more likely to say they will retire beyond age 70.

These findings are from WTW's 2022 Global Benefits Attitudes Survey, which captured the responses of more than 9,600 U.S. employees. The survey was fielded from December 2021 to January 2022, before the substantial decline in stock market values seen throughout 2022, which further worsened retirement prospects for many workers.

According to the WTW survey, the top three reasons employees cited for not saving more for retirement were:

• Paying off debts (36 percent).
• Saving for other reasons, such as holidays, a new car or education (28 percent).
• Not being able to afford to save more (27 percent).

Over half of respondents (52 percent) were facing key risks to their retirement security, such as saving less than 5 percent of salary and borrowing or permanently withdrawing funds from their 401(k) plan. The number of older workers (age 50 and over) who plan to work past age 70 rose to 36 percent, compared with 30 percent in 2019.

"Saving enough money to retire comfortably while meeting current financial needs remains a significant challenge for a majority of workers," said Mark Smrecek, senior director, retirement, at WTW. "At the same time, workers, and especially older ones, are asking themselves when they will be able to retire. With the pandemic and current economic uncertainty with inflation, how workers are transitioning to retirement is changing."

Help with Retirement Savings

Nearly 3 in 4 of WTW survey respondents with a workplace retirement plan (73 percent) said their employer's plan is the primary way they save for retirement, and many would like more help from their employers: 44 percent of employees rank retirement in the top three issues they most want their employers to focus on.

"Employees want help with saving for retirement," said Jennifer DeMeo, managing director for integrated and global solutions at WTW. She advised employers to provide resources, tools and technology to help employees make informed decisions about long-term savings.

Noted Sri Reddy, senior vice president for retirement and income solutions at Principal Financial Group, "There are individual decisions both in work and our personal lives that can help us maintain financial security. The good news is that employers can use these moments of focus to help increase workplace retirement plan awareness, engagement and outcomes among participants."