Workers have positive visions of retirement, looking forward to an active phase in life, but across the three generations currently in the workforce, they share the same top fear, according to a recent study.
In “What Is ‘Retirement’? Three Generations Prepare for Older Age” by the Transamerica Center for Retirement Studies (TCRS), outliving savings and investments, not surprisingly, was found to be the most frequently cited retirement concern of Baby Boomers, Generation X and Millennials. This was cited by 48% of respondents in TCRS’s 19th annual retirement survey of U.S. businesses and workers regarding their attitudes toward retirement.
Other fears vary by generation, such as concern over a reduction in or elimination of Social Security, which is more frequently cited by Baby Boomers (49%) and Gen Xers (48%) than by Millennials (39%), according to the study.
Not surprisingly, Baby Boomers are more likely to cite a fear of declining health that requires long-term care (49%) than are Gen Xers (41%) or Millennials (36%). Not being able to meet the family’s basic financial needs is a retirement fear more likely cited by Millennials and Gen Xers, both registering at 43%, compared with Baby Boomers at 32%.
Drawing on these conclusions, the study further shows that 55% of workers plan to work after they retire, including 41% who plan to work part-time and 14% who plan to work full-time. Among workers planning to work in retirement or past age 65, most plan to do so for financial reasons (80%) and almost as many for healthy-aging reasons (72%).
In addition, 44% of workers envision a phased transition into retirement during which they will either reduce their work hours to have more leisure time (27%) or work in a different capacity that is less demanding or that brings greater personal satisfaction (17%). Another 22% plan to continue working as long as possible until they cannot work anymore, the study notes.
Vital Role of Employers
Transamerica emphasizes that employers should take note that while workers value retirement benefits highly, there is room for improvement. The findings show that 86% of workers value a 401(k) or similar retirement plan as an important benefit, and 81% say that retirement benefits offered by a prospective employer will be a major factor in their decision whether to accept an offer.
In addition, 59% say they would be likely to switch employers for a nearly identical job with a similar employer that offered a retirement plan or one that is better. Flight risk is greatest among Millennials, where 67% share this sentiment. A majority of Generation X (58%) respondents would also be likely to switch, while Baby Boomers were found to be less likely to do so at 46%.
And while three out of four workers are saving for retirement through employer-sponsored plans, such as a 401(k) or similar plan and/or outside the workplace, the study suggests that many are not saving enough. Workers have saved $50,000 (estimated median) in all household retirement accounts. Broken down further, the study shows that Baby Boomers have saved $152,000, Gen Xers have saved $66,000 and Millennials have saved $23,000 (estimated medians). Overall, 11% of workers do not have any household retirement savings.
What’s more, the Transamerica finds that nearly 30% of workers have dipped into retirement accountsby taking a loan, early withdrawal and/or hardship withdrawal from a 401(k) or similar plan or IRA. Baby Boomers (at 22%) are less likely to have done so compared with Gen Xers (32%) and Millennials (30%).
Recommendations
In working with plan advisors and HR professionals, the study offers a number of suggestions for employers to help improve their employees’ retirement outlook:
- Offer a retirement plan or achieve efficiencies by joining a multiple employer plan (MEP). If a plan is not already in place, take advantage of the tax credit available for starting a retirement plan or joining a MEP.
- Extend retirement plan eligibility to part-time workers, or, if not practical, provide workers the ability to contribute to an IRA through payroll deduction.
- Consider adding automatic enrollment and escalation features to increase retirement plan participation and salary deferral rates, if needed.
- Limit the number of loans available in the retirement plan and educate employees about the ramifications of taking loans and withdrawals from retirement accounts.
- Structure matching contribution formulas to promote higher salary deferrals (e.g., instead of matching 100% of the first 3% of deferrals, change the match to 50% of the first 6% of deferrals).
- Offer pre-retirees greater levels of assistance in planning their transition into retirement, including education about retirement income strategies for managing savings to last their lifetime and retirement plan distribution options.
- Create opportunities for workers to phase into retirement by allowing for a transition from full-time to part-time, working in different capacities or different locations, and/or having a more flexible schedules.
At the same time, workers should do as much as they possibly can to improve their retirement prospects and achieve their vision of retirement, Transamerica suggests. “Small steps such as using a retirement calculator to estimate savings needs, engaging in financial planning, creating a budget, formulating a retirement strategy, and learning about retirement investing can make a big difference in the long run,” says Catherine Collinson, CEO and president of Transamerica Institute and TCRS.
The study’s findings are based on a 25-minute online survey conducted by The Harris Poll between Oct. 26 and Dec. 11, 2018, among a nationally representative sample of 5,923 full- and part-time workers, including self-employed.
