A survey as sweeping and long-standing (26 years) as the Retirement Confidence Survey has plenty of insights to draw on – but, boiled down to its essence, these are what I think are the key points.
Those with a plan are in much better shape from a savings standpoint than those without one.
While this data has probably lain within the RCS findings for a while now, it was only in the last three years that it became headline material. While some may consider it be self-evident, workers with a retirement plan (DC, DB, or IRA) have significantly more in savings and investments than do those without a plan, and even on a household level, these workers tend to have retirement savings in multiple vehicles. Moreover, the vast majority (90%) of workers with a DB plan through their current or previous employer also have money in an employer retirement savings plan.
It follows then, that they are more confident – and doubtless more justified in being confident – than those who do not have a plan.
One note of caution: Although 56% of workers say they expect to receive benefits from a DB plan in retirement, only 35% report that they and/or their spouse currently have such a benefit with a current or previous employer. Wishful thinking?
Debt is a burden on both retirement savings and confidence.
In the 2016 RCS, just 9% of workers who describe their debt as a major problem say they are very confident about having enough money to live comfortably throughout retirement, compared with 32% of workers who indicate debt is not a problem.
On the other hand, half of workers with a major debt problem are not at all confident about having enough money for a financially secure retirement, compared with just 12% of workers without a debt problem.
Those who are counting on working past age 70 probably shouldn’t.
The RCS has consistently found that a large percentage of retirees leave the workforce earlier than planned (46% in 2016, in fact). Many who retired earlier than planned did so because of a hardship, such as a health problem or disability (55%), though 33% said they could afford to, and a quarter wanted to do something else.
Just 8% of workers say they plan to retire before age 60, compared with 36% of retirees who report they retired that early.
Bottom line: You’re at least as likely (and probably more so) to find yourself coping with an unexpected (and early) retirement than to have an extended career.
Workers are much more confident about their ability to fund “regular” expenses in retirement than health care and long-term care. Retirees even more so.
Forty-three percent of workers are now VERY confident that they will have enough money to pay for basic expenses during retirement (up from 37% in 2015 and 25% in 2013).
Setting aside confidence, compared with what they expected when they first retired, retirees are more likely to say their expenses in retirement are higher than expected (38%) rather than lower (21%). However, 38% say their expenses are about the same as expected. Similarly, 37% retirees report that the level of their savings and investments is lower than expected at this point in their retirement, while slightly more (39%) report that the level is about what they expected. Just over one in five (22%) find it is higher than expected.
Bottom line: Concerns about future health care costs loom large. And retirement expense expectations are something of a crapshoot (of course, since fewer than half have made any attempt to ascertain those needs, their expectations could be wildly unrealistic).
Some of that retirement confidence looks to be based on some pretty low – and largely uninformed - replacement rate assumptions.
In the 2015 RCS, nearly a quarter (22%) of workers thought they could manage in retirement with less than half of their preretirement income, and another third (34%) were targeting 50%-70%. Perhaps not surprisingly, they were pretty confident of achieving those targets; nearly 4 out of 10 (36.5%) of those targeting less than half their pre-retirement income were very confident of their retirement prospects, as were nearly a quarter (22.7%) of those targeting between 50% and 70%.
In the 2016 RCS, just 48% said that they (or their spouse) had tried to figure out how much money they would need to live comfortably in retirement – and that’s been a pretty consistent read over time. Sadly, of those people, 39% merely guessed (26% did their own estimate, 22% asked a financial adviser, and 10% each used an online calculator or read/heard how much was needed).
If the survey respondents were not putting themselves in a position to do the evaluation, I am even less equipped to do so. That said, even those nearing retirement – roughly 4 in 10 workers ages 55 and older – have not yet tried to calculate how much money they will need to have saved to live comfortably in retirement.
Bottom line: Ignorance may be bliss – but it may not last long.
