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A Healthy Bump for Retirement Confidence?

Americans continue to feel better about their retirement prospects, especially if they are healthy, have a defined contribution plan – or are already retired!

This according to the 28th annual Retirement Confidence Survey from the non-partisan Employee Benefit Research Institute (EBRI). The survey purports to be “the longest-running survey of its kind,” measuring both worker and retiree confidence about their retirement confidence and other related aspects. In the 2018 version (taken prior to the recent waves of market volatility, it should be noted), the RCS found that the share of workers who feel very confident in their ability to live comfortably in retirement was about even with last year (17%, compared with 18% in 2017), but another 47% are somewhat confident, leaving nearly two-thirds of survey respondents very or somewhat confident.

Confidence Connection?

The RCS, conducted by EBRI and Greenwald Associates, this year found a connection between the impact health and health care expenses have on retirement confidence and financial well-being: 6 in 10 workers who are confident in retirement overall are in excellent or good health. As for those not confident about retirement, only 28% report such good health. The same is true for retirees: 46% of confident retirees are in good health compared to just 14% who are not confident. What’s less clear is whether they are confident because they are healthy, or healthy because they are confident (or have a reason to be).

Uncertainty about financial needs in retirement certainly takes a toll on confidence, and concerns about future health care costs definitely loom large. That said, only 19% of workers and 39% of retirees have tried to calculate how much money they would need to cover health care costs in retirement. Not surprisingly, those with a retirement plan were noticeably more likely to have done so. (EBRI has previously estimated that some couples could need as much as $370,000 to cover health care costs in retirement.)

Interestingly enough, retirees who made this calculation are less likely to have experienced higher-than-expected health costs and more likely to say costs are as expected (although arguably, having made an attempt to estimate the costs would provide a basis for those expectations). Worthy of note for employers and advisors: 7 in 10 employed workers and 6 in 10 employed retirees say that workplace education on health care planning for retirement would be helpful.

Declining Findings

Retirees, though still more confident than workers about retirement prospects (hey, they’re already living it, right?), this year registered a decline in overall confidence, likely because (as noted above) their confidence in being able to afford medical and long-term care expenses in retirement is down significantly. This comes at a time when the RCS found that more than 4 in 10 retirees report that their health care expenses in retirement are higher than they expected, and another one in four say long-term care costs have been higher. Not helping matters is a decline in their confidence that Social Security and Medicare will continue to provide benefits equal to what retirees receive today has decreased. Still, a full three-quarters of retirees are very or somewhat confident they will have enough money for retirement – and that’s as high as it has been going all the way back to 1994 (except for last year, when 79% were that confident).

Surprisingly, only about half (48%) of retirees said that a workplace retirement plan has been a source of income in retirement. On the other hand, 60% of those who are zero to five years into retirement say it has. Meanwhile more than 4 in 10 retirees (44%) with a DC plan rolled at least some of that money into an IRA. In total, 7 in 10 took at least some of their money out of the plan.

As in previous years, the report finds some issues with retirement assumptions, notably that workers expect to retire later than retirees actually do, and that two out of three expect work for pay to be either a major or minor source of income in retirement, although only one in four retirees say working is a source of income for them.