The recent release of EBRI’s 2013 Retirement Confidence Survey (RCS) got a lot of attention. The headlines were mostly about Americans’ lack of confidence in their prospects for a financially secure retirement; indeed, the percentage “not at all confident” hit an all-time high for the RCS, while the percentage “very confident” remained at the all-time low it notched a year ago. A striking number of inquiries about the report focused on what could be done about retirement confidence.
As it turns out, there are several things that the study linked to higher confidence. Having more retirement savings is perhaps the most obvious connection, and so is participation in a workplace retirement savings plan (which was also linked to larger savings balances. [1. According to the 2013 RCS, workers who participate in a retirement savings plan at work (45%) are considerably more likely than those who are offered a plan but choose not to participate (22%) or are not offered a plan (18%) to have saved at least $50,000. These participants are much less likely than others to report having saved less than $10,000 (20% vs. 46% who choose not to participate and 50% who are not offered a plan).]
However, the RCS also found that something as fundamental as having taken the time to do a retirement needs assessment made a positive difference in confidence [2. Advisors have access to a wide range of tools and resources, but a great place to help participants start figuring out what they’ll need is the BallparkE$timate®, available online at www.choosetosave.org, along with a variety of other free resources, courtesy of the American Savings Education Council (ASEC). Choose to Save® is sponsored by the nonprofit, nonpartisan Employee Benefit Research Institute Education and Research Fund (EBRI-ERF) and one of its programs, the American Savings Education Council (ASEC). The website and materials development have been underwritten through generous grants and additional support from EBRI Members and ASEC Partner institutions.] — even though those who had done such an assessment tended to set higher savings goals. [3. The RCS found that 31% who have done a calculation, compared with 14% who have not, say they are very confident that they will be able to accumulate the amount they need, while 12% who have not done a calculation, compared with 3% who have, report they are not at all confident in their ability to save the needed amount.] However, fewer than half of workers responding to the RCS have completed this assessment, and many of those who have made an attempt to figure out how much they might need, guess. [4. Workers often guess at how much they will need to accumulate (45%), rather than doing a systematic, retirement needs calculation, according to the RCS, while 18% indicated they did their own estimate, another 18% asked a financial advisor, 8% used an on-line calculator, and another 8% read or heard how much was needed.]
Still, when asked how much they need to save each year from now until they retire so they can live comfortably in retirement, one in five put that figure at between 20% and 29%, and nearly one-quarter (23%) cited a target of 30% or more. Those targets are larger than one might expect, and larger than the savings reported by RCS respondents would indicate. They do, however, suggest that some are beginning to grasp the realities of their situation — a realization that could be weighing on their confidence in the future, even as it lays the foundation for change.
Because, as every good advisor knows, what really matters is not how confident you feel, but whether you have a reason to feel confident.
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