A large majority of workers are saving for retirement through employer-sponsored plans or outside the workplace, but a new study suggests that the risks remain great, as many contend with pandemic-related financial strains.
According to “Living in the COVID-19 Pandemic: The Health, Finances, and Retirement Prospects of Four Generations” by the Transamerica Center for Retirement Studies (TCRS) in collaboration with Transamerica Institute, 82% of workers are saving for retirement.
But despite that impressive number, many workers may not be saving enough, based on their reported household retirement savings. The study found that total household retirement savings among all workers is $93,000 (estimated median). Not surprisingly, Baby Boomer workers have the most at $202,000, compared with Gen X ($107,000), Millennials ($68,000) and Gen Z ($26,000) (estimated medians).
The study examines the retirement outlook of Gen Z, Millennials, Gen X and Baby Boomers based on TCRS’ 21st Annual Retirement Survey of Workers conducted in late 2020.
Misguided Perceptions
What could be making saving for retirement more challenging is that nearly half of workers believe they do not have enough income to save. Consider that 48% of workers agree with the statement, “I don’t have enough income to save for retirement,” including 20% who “strongly agree” and 28% who “somewhat agree.” Gen Z (55%), Millennials (49%) and Gen X (48%) are more likely to agree, compared with 40% of Baby Boomers.
By the same token, the study finds that many may be procrastinating. Here, 40% of workers agree with the statement, “I prefer not to think about or concern myself with retirement investing until I get closer to my retirement date,” including 13% who “strongly agree” and 27% who “somewhat agree.” As one might expect, younger workers are more likely to agree with this statement than older workers: Gen Z (54%), Millennials (48%) and Gen X (38%), compared with Baby Boomers (23%).
Pandemic Disruptions
Additional findings show that 6 in 10 have made adjustments due to pandemic-related financial strain, including reducing day-to-day expenses (32%), dipping into savings accounts (24%), accumulating new credit card debt (17%), reducing or stopping contributions to retirement accounts (14%) and forgoing health care (14%).
Many also cite paying off one or more types of debt as a financial priority (62%). Gen Z (35%) is more likely to cite paying off student loans, while Millennials, Gen X and Baby Boomers are somewhat more likely to cite credit card debt (43%, 42% and 37%, respectively).
“Given the magnitude of challenges workers have faced during the pandemic, it is truly remarkable that they have maintained focus on their future retirement. However, before the pandemic and today, many workers continue to be at risk of not achieving a financially secure retirement,” notes Catherine Collinson, CEO and President of Transamerica Institute and TCRS.
Retirement Confidence
Despite the challenges, retirement confidence has stayed the same for most workers. Nearly two-thirds (64%) indicate their confidence in their ability to retire comfortably has stayed the same in light of the pandemic. Only 16% of workers indicate their confidence has declined, while 11% say it has improved. Across generations, Baby Boomers were more likely than their younger counterparts to indicate their retirement confidence has stayed the same.
Still, only 24% of workers are “very” confident that they will be able to fully retire with a comfortable lifestyle. Millennials (30%) are more likely to be “very” confident than Baby Boomers (21%), Gen X (19%) and Gen Z (16%).
Similarly, more than 6 in 10 workers (61%) say the pandemic has not changed when they expect to retire. In contrast, 31% say that it has changed their retirement expectations, including 22% who expect to retire later and 9% who expect to retire earlier. Millennials are more likely to say that they expect to retire later due to the pandemic.
Access Inspires
Not surprisingly, the study also found that having access to a 401(k) inspires workers to save. Workers who are offered a 401(k) or similar retirement plan by their employer are more likely to save and invest for retirement in the plan and/or outside of work (91%) compared with those who do not have access to such plans (53%).
Given these collective findings, the study suggests that a concerted effort is needed among workers, employers and policymakers to help improve retirement security:
- Workers can improve their fiscal health by creating a financial plan and gaining a full understanding of their situation by preparing a budget, prioritizing expenses, setting short- and long-term goals, learning about investing and developing a retirement strategy.
- Employers can enhance their retirement health and welfare benefits offerings, as well as business practices, which can help employees protect their finances and save for the future, while helping employers attract and retain talent in today’s competitive market.
- Policymakers can build on recent legislation by implementing additional reforms that expand retirement plan coverage, increase incentives for employers to offer plans and facilitate retirement savings.
The report is based on findings from TCRS’s annual retirement survey, which was conducted by The Harris Poll between Nov. 17 and Dec. 29, 2020, among a nationally representative sample of more than 10,000 adults. The data in this report is shown for a subsample of 3,109 workers in for-profit companies.
