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Watching the Retirement Horizon

May 13, 2015

Several recently released surveys paint a complex picture of retirement health among U.S. workers.

Trending Up, But Still Tough

According to Employee Benefit Research Institute's (EBRI) 2015 Retirement Confidence Survey—the 25th annual RCS—the nation's retirement confidence continues to rebound from record lows between 2009 and 2013. Twenty-two percent of respondents to the 2015 survey say they are confident about having enough set aside for a comfortable retirement—up from 18 percent in 2014 and 13 percent in 2013. Worker confidence in affording various costs during retirement is also on the rebound. For instance, the percentage of those who are very confident that they will be able to pay for basic expenses has increased to 37 percent in 2015, up from 29 percent in 2014 and 25 percent in 2013.

The optimism appears in part to hinge on having a retirement plan, such as a defined contribution or defined benefit plan, or an individual retirement account. While only 14 percent of those who have such a plan indicate they are not at all confident about having enough saved for retirement, 44 percent of workers without a retirement plan express this concern. Savings remain low for those without a retirement plan, and only a minority of those workers seem to be taking necessary steps to prepare for retirement. Among those workers without a retirement plan, 64 percent indicate they have saved less than $1,000.

Heading the list of reasons why workers don't save or save more are day-to-day and cost-of-living expenses. At the same time, fewer workers in 2015 (51 percent) described their level of debt as a problem compared to those in 2014 (58 percent), a possible indication that individuals are more focused on reducing debt at this time than on saving for retirement, suggests the report.

In other research from EBRI, there appears to be growing unease among workers with their wage and benefits mix. According to EBRI's 2014 Health and Voluntary Workplace Benefits Survey, while 12 percent of workers say they would trade wages for more health benefits, 19 percent would surrender some health benefits to get higher wages-nearly double the 10 percent in 2012 who reported the desire for higher wages in lieu of some health benefits.

Seeking Lifetime Security

According to the latest PricewaterhouseCoopers Employee Financial Wellness Survey, published in April 2015, a number of data points reflect positive changes for the financial well-being of employees, with overall improvements in cash flow and debt management, and less strain in meeting household expenses. Whether these improvements hold in coming years remains in question in the face of stagnant wages and an increasing burden on employees to take responsibility for their retirement funding and health-care costs.

For instance, fewer employees were carrying credit card balances (47 percent) in 2015 than in 2012 (53 percent). Of those carrying a balance, 26 percent reported difficulty meeting minimum monthly payments in 2015 as compared to 39 percent in 2012. While employee confidence regarding retirement continued to gain steady ground (from 27 percent in 2012, to 35 percent in 2013, to 40 percent in 2014, to 43 percent in 2015), 35 percent of survey respondents believe they will likely need to tap money from their retirement plans for non-retirement related expenses, and one in five (21 percent) survey respondents noted they would contribute less to their employer-sponsored, tax-advantaged retirement account if they had to wait until retirement to access their funds.

Among other key findings:

  • More than two-thirds (70 percent) of employees said they should have primary responsibility for funding their retirement, versus 17 percent who thought employers should bear this responsibility, and 13 percent who said the government should be responsible.
  • Only half (51 percent) of employees feel comfortable making investment selections for their retirement.
  • Half of all employees surveyed (51 percent) said they would sacrifice some of their future pay increases in exchange for guaranteed retirement income for themselves and for their spouse. This is up slightly from 48 percent in 2014.
  • And, nearly three quarters of employees (74 percent) prefer a retirement plan that would provide guaranteed fixed monthly payments for the individual and spouse/partner for life versus one that provides a lump sum at retirement for which individuals are responsible to invest the funds.

See the full report for additional noteworthy findings related to employee retirement and health savings accounts, including interesting differences in attitudes and opinions by generation.

(Note: See also the article in the April 2015 issue of Sibson Consulting's Perspectives entitled, "Generating a Stream of Retirement Income in a World Without DB Plans: Guaranteed Retirement-Income Products for DC Plans", which describes guaranteed retirement-income products for defined-contribution plans. According to the article, these products, which give participants a distribution option that ensures a guaranteed level of income for life, can take the form of an annuity or a minimum investment guarantee. In addition, organizations offering these distribution options often include a guaranteed vehicle for investment of plan assets during a participant's accumulation period, which can be converted into a guaranteed-income vehicle upon retirement.)

The Retirement Readiness Gap

The Continuing Retirement Savings Crisis, published in March 2015 by the National Institute on Retirement Security, paints a sobering picture of the state of retirement readiness across the country. Among its findings and conclusions:

  • In 2013, more than 45 percent of all employees (43.3 million individuals) worked for an employer that did not sponsor a retirement plan in 2013.
  • Nearly 40 million working-age households (45 percent) do not own any retirement account assets, whether in an employer-sponsored 401(k) type plan or an IRA. While a notable gap exists between older and younger households with regard to retirement account ownership—46 percent among households ages 25 to 34 versus 59 percent among those ages 55 to 64—the gap in participation is much wider across income groups. Households that do own retirement accounts have a median annual income of $86,235, or 2.4 times the median income of $35,509 for those households that do not own a retirement account.
  • The average working household has virtually no retirement savings. When all households are included (not only those with retirement accounts), the median retirement account balance is $2,500 for all working-age households and $14,500 for near-retirement households. In addition, 62 percent of working households nearing retirement—ages 55 to 64—have retirement savings of less than their annual income.