The Chicken or the Egg?

It is a question that has puzzled philosophers and scientists for centuries: which came first – the chicken or the egg? Similarly, an updated version of a classic survey of retirement confidence finds some interesting attributes among those who are more confident about their prospects – but are those attributes a result of that confidence, or is it the confidence that preceded them?

The 28th annual Retirement Confidence Survey (RCS) from the non-partisan Employee Benefit Research Institute (EBRI) and Greenwald Associates found that Americans are feeling a bit better about their retirement prospects.
However, the RCS also found – as it has in previous years – that certain factors are tied to higher confidence, specifically if they have access to a defined contribution plan, are relatively free from debt, are already retired – or, in a new finding from this year’s RCS – that they are healthy.

Now, the connection between access to a retirement plan and savings is well established. An updated analysis by EBRI finds that even those with modest incomes – those making between $30,000 and $50,000 – are nonetheless a dozen times more likely to save if they have access to a retirement plan at work.

More intuitive is the negative impact that debt, particularly heavy debt, can have on retirement savings, not to mention the impact on confidence about that savings, or more precisely, the lack thereof.

As for the new finding in this year’s RCS, 6 in 10 workers who are confident about their retirement prospects say they are in excellent or good health. As for those who are not confident about retirement, only 28% report such good health. The same is true for retirees: 46% of confident retirees are in good health, compared to just 14% who are not confident. What’s less clear is whether they are confident because they are healthy, or healthy because they are confident (or have a reason to be).

In fact, those of us still looking ahead to retirement can draw some comfort that those in retirement are – and have consistently been – more confident about retirement. Indeed, in this year’s RCS, a full three-quarters of retirees are very or somewhat confident they will have enough money for retirement – and that’s as high as that metric has been going all the way back to 1994 (except for last year, when 79% were that confident).

Of course, retirees were also more than twice as likely (39% versus 19%) as workers to have tried to calculate how much money they would need to cover health care costs in retirement – and those who had were less likely to have experienced higher-than-expected health costs and are more likely to say that costs are in line with their expectations.

Ultimately, there’s nothing like actually living in retirement to provide a solid sense of what it costs to live in retirement. When it comes to retirement confidence, it may not always be obvious as to whether the chicken or the (nest) egg came first.

But it seems to me that a "bird" in the hand is nearly always worth two in the bush…