The percentages of workers and retirees who are confident in their ability to live comfortably in retirement now reflect levels measured prior to the 2008 financial crisis, but some underlying concerns persist.
Those findings are contained in the Employee Benefit Research Institute’s 2019 Retirement Confidence Survey (RCS), which reveals that 82% of retirees say they are confident in their ability to live comfortably throughout retirement, up from 75% last year and comparable to highs measured in 2005 and 2017.
Now in its 29th year, the RCS – conducted by EBRI and Greenwald & Associates – also finds that two-thirds of American workers (67%) feel confident in their ability to retire comfortably, with 23% feeling very confident. That’s six percentage points higher than last year’s 17% and now reflects levels measured more consistently in the late 1990s and early 2000s – albeit still short of the 27% high measured in 2007.
Not surprisingly, retirement confidence continues to be closely associated with having a retirement plan. “Workers reporting that they or their spouse have money in a DC plan or IRA, or have benefits in a DB plan, are nearly twice as likely to be at least somewhat confident about retirement – 74% with a plan vs. 39% without a plan,” notes Craig Copeland, EBRI senior research associate and co-author of the report.
Sources of Income
Differences do emerge between the income sources retirees report as compared with the expectations of workers. For example, the RCS shows that 8 in 10 workers (82%) are far more likely to expect income from a workplace retirement savings plan (separate from a pension plan), yet only half of retirees (54%) report this is a source of income.
Consistent with last year, 8 in 10 workers believe their workplace DC plan will be a major or minor source of income in retirement, 3 in 4 expect income to come from their personal retirement savings or investments, and 7 in 10 expect income in retirement from an IRA.
On a positive note, the RCS further reveals that 8 in 10 DC participants are satisfied overall with their DC plans, while 8 in 10 are satisfied with the plan’s investment options and 7 in 10 with the investment fees they pay. “With so many workers expecting DC plans to be a source of income in retirement, it is good to see that workers express satisfaction with their DC plans,” notes Copeland.
There does, however, appear to be some uncertainty on what DC participants will do with their money when they retire, as 27% say they don’t know whether they will roll the money into an IRA, keep it in the plan or cash it out, Copeland further explained.
To that end, workers also express interest in products that guarantee lifetime income, with three in four interested in both in-plan options and rolling into new products at retirement. Notably, half of workers expect that a guaranteed lifetime income product will be a source of retirement income for them, up from 35% in 2018, but only a third of retirees report that they receive income from this type of product.
When asked to identify their guiding principle for managing finances in retirement – income stability versus preserving principal and wealth – significant majorities of both retirees (65%) and workers (74%) selected “income stability: ensuring a set amount of income for life.”
Got It Covered?
While worker confidence in covering basic expenses in retirement remains consistent and their confidence in taking care of medical or long-term care expenses has gone up, there remains a sizable percentage of respondents who expressed some concern.
According to the findings, 72% of workers are confident in being able to afford basic expenses in retirement, but 41% are not confident about their ability to cover medical expenses and nearly half (48%) feel the same about covering long-term care expense in retirement. Workers are also more likely to cite debt as a concern compared with retirees — 61% compared with 26% of retirees.
There also continues to be a lack of alignment between workers’ expectations about their age of retirement and prospects for working in retirement compared with retirees’ experiences. As in previous years, workers anticipate an expected median retirement age of 65, while retirees report they retired at a median age of 62. According to EBRI, the survey has consistently found that 43% of retirees leave the workforce earlier than planned, with 35% citing illness or disability as the reason and 35% retiring due to changes at their company.
The most pronounced gap in retiree experience and worker expectation for retirement income sources remains working for pay in retirement. The RCS found that 80% of workers expect to work for pay in retirement, yet only 28% of retirees report that they have actually done this. “It is risky for workers to assume they will be able to work into retirement when, for so many retirees, this has not been the case. I understand there’s a strong desire for income stability, but for many, continuing to receive a regular paycheck from work may not be the solution,” notes Lisa Greenwald, executive vice president of Greenwald & Associates.
The 2019 survey of 2,000 Americans (1,000 workers and 1,000 retirees) was conducted online Jan. 8-23, 2019, with all respondents being ages 25 or older. The survey also included an oversample of 307 Gen X workers.