Americans generally believe that their retirement savings are doing better, but apparently there is a sizeable confidence gap in their ability to enjoy a comfortable retirement.
According to the Principal Financial Group’s latest Retirement Security Survey, American workers of all generations put “comfortable retirement” among their top life goals, yet a large percentage are uncertain about how to plan for it, when to retire and how they will pay for it.
The findings show that 71% of respondents cite “living comfortably in retirement” as a top life goal, but less than half (49%) have confidence that their savings will be enough and a 55% do not feel secure in their retirement planning. These numbers were fairly consistent across generations, with the exception of Gen Z, which had different top life goals, but roughly the same confidence level.
The latest research gathers insights from workers, retirees and plan sponsors about their experiences and views related to retirement planning and financial well-being. More than 2,000 U.S. consumers and 248 plan sponsors that have at least one financial product or service with Principal participated in the study in November and December 2021.
Key Worker and Retiree Findings
The overall top life goals for both workers and retirees are to feel financially secure, maintain good health and to live financially comfortable in retirement. More than 40% of workers found that mental and physical health, feeling financially secure and work/life balance to be more important since the start of the pandemic. For retirees, it is of greater importance to have good physical health.
Retirement Plan Capabilities and Confidence. Meanwhile, half of workers are either unsure how much they should be saving for retirement or know they are saving less than they should be to reach their goals. Workers see the top criteria for reaching retirement goals as having:
- employer matching contributions (62%);
- a balanced investment portfolio (52%); and
- financial advice and guidance (51%).
In addition to not having enough money saved, the cost of health care in retirement (64%) and concerns about Social Security (64%) loom large as the top reasons preventing workers from feeling they will be financially comfortable in retirement.
Concerns that Social Security will not be available (73%) and the cost of health care expenses in retirement (80%) are even higher for Gen X workers; similarly, Baby Boomers are concerned with health care expenses (69%), as well as not having enough money saved (66%) and the unpredictability of government decisions and its effect on savings and taxes (66%).
Influences that will be driving workers’ retirement decisions are focused on when they feel they have saved enough, the feeling that they cannot work any longer and a “gut” feel. At the same time only 47% of workers are confident they have the knowledge to make good decisions with their retirement account ahead of a job change or retirement. That confidence level dropped from 59% in the first quarter of 2021, Principal notes.
Drawdown Strategy. Similarly, nearly a third of workers are not sure of the drawdown strategy they will take. The survey found that there was an increase of both workers and retirees who plan to spend down accumulated retirement savings as needed and a decline with consumers relying on the RMD strategy.
“In a world where fewer Americans have pensions, securing a source of steady income beyond Social Security is not only smart, but can provide confidence for people to spend the money they’ve worked so hard to save without fear of running out,” observes Sri Reddy, senior vice president, Retirement & Income Solutions at Principal. “Identifying an ‘income floor’ in retirement is a great way for people to kickstart this process,” he adds.
Plan Sponsor Findings
On the plus side, Principal’s survey of plan sponsors shows employer awareness of the need for stronger retirement plans and benefits, and that they believe their employees value and appreciate the plan. At the same time, however, few organizations feel their employees will have enough money saved. Plan sponsors even admit to struggling to encourage their employees to start planning for income in retirement.
According to the findings, just 39% of plan sponsors feel their employees are doing a good job preparing for retirement and only 15% feel their employees will have enough money saved. Employers also apparently feel that participants are doing a poor job at reviewing expected health care costs in retirement and researching different ways to create retirement income from their accumulated savings.
That said, they know offering a retirement plan is important for maintaining their workforce, with about half citing retention and attraction as a top reason to offer a plan, and 61% feeling it’s important for employees to participate.
Employers know there’s an opportunity to do more, says Principal. In this case, 32% of plan sponsors say they don’t believe they do enough to encourage employees to increase their deferral percentage and 33% feel they don’t do enough to encourage employees to start planning for income in retirement.
Retirement Income. Additional findings show that nearly half of plan sponsors want to make retirement income options available in the plan. And 4 in 10 want the income solutions to be utilized by as many of their participants as possible, while 21% say they don’t want to be involved with the retirement income decisions of participants.
Moreover, nearly half of plan sponsors are supportive of employees taking a phased retirement approach, but only a few believe their retirement benefits are aligned for employees to do so.
“Time and again, Americans overwhelmingly say they want a comfortable retirement, and shifts in the past few years about how we work and think about work has not changed that,” says Reddy. “But our research shows there is a lot of work to be done to help people feel more secure and confident in their planning. It’s our job to demonstrate how the right tools, resources, and education can help people remain calm through bouts of market volatility while still preparing for the future.”
