Retirement Realities

 Are you confident about your retirement finances? Apparently, and despite responses that undermine a rational level of confidence, many are.

Last week, the Employee Benefit Research Institute (EBRI) and Greenwald Research unveiled their 34th annual Retirement Confidence Survey (RCS). Now, I’ve commented previously about the dubious conclusions one can draw from personal sentiment surveys, not to mention those personal assessments of wealth and needs.

Those limitations notwithstanding, over the years, the Retirement Confidence Survey has helped uncover a number of interesting and intriguing perspectives about retirement, real and imagined―and no small number of what would appear to be unrealistic expectations about retirement: expectations around how long individuals think they will be able to work, for example, or that they will be able to work for pay after retirement.

Additionally, there have been indications that more individuals expect to receive a pension than would be suggested by the data regarding how many American workers are actually covered by such programs. However disconnected those perspectives seem from reality, their mere acknowledgement provides a valuable opening for discussion.

The RCS is, after all, based on phone interviews with participants and retirees, rather than an objective evaluation of their incomes and actual savings accounts. However, in view of the expressed “need” versus “have” amounts, it’s hard not to wonder how many are confident when they have no reason to be. Indeed, two-thirds (68%) of the workers and three-fourths (74%) of retirees surveyed were very or somewhat confident about having enough money to live comfortably in retirement—unchanged from a year ago (albeit a different group of individuals). And one might feel a bit better about that level of expressed confidence until you get to the datapoint regarding how many had made any attempt to figure out how much they would need, only to discover that (only) half (52%) had.[i]

But if worker pre-retirement confidence (still) seems disconnected from reality, the post-retirement version—from folks actually living IN retirement—remains reassuring. While over half of retirees say their overall expenses in retirement are higher than they originally expected, nearly 4 in 5 say they are able to spend money how they want, within reason.

Moreover, despite those higher-than-expected costs, significantly more retirees this year—3 in 10—say their overall lifestyle in retirement is better than expected[ii]—and more than two-thirds of retirees agree they are having the retirement lifestyle they envisioned—a statement with which a quarter of retirees strongly agree. And while three-quarters of workers expect to work in retirement, just 3 in 10 retirees report they actually do.

As a long-time RCS “watcher” (and, once upon a time, an RCS “voice”), you learn that people’s confidence rises (and falls) with the stock market—though there doesn’t seem to be a direct correlation between those movements and their actual retirement savings. People consistently report that they haven’t made even a single attempt to figure out what their retirement needs will be—and among those who have been “guessing” remains a popular response.[iii] The closer you are to claiming Social Security benefits, the more confident you are in receiving them—even though this year’s RCS notes that fewer than half of workers have reviewed the amount of their Social Security benefits at their planned retirement age, and only 59% have thought about how the age at which they claim Social Security will impact the amount they receive (and, despite their claiming status, just 77% of retirees have).

On the other hand, the mere attempt to figure out retirement needs seems to increase confidence.  Ditto working with an advisor. But the biggest boost in confidence seems to come from having a retirement plan; those reporting they or their spouse have money in a DC plan or IRA or have benefits in a DB plan from a current or previous employer were more than twice as likely as those without any of these plans to be at least somewhat confident (77% with a plan vs. 34% without a plan).

All, in all, for those looking to feel more confident about retirement (or looking to help others feel more confident), I’d offer the following suggestions:

• Get access to a retirement plan at work—and participate.
• Take advantage of any number of free retirement-needs calculators to get at least a sense of your likely needs (it probably won’t be as bad as you think).
• If your plan offers access to a retirement plan advisor—use them.

If you do all of those, you’ll not only feel more confident about retirement—odds are that feeling will be supported by reality.

- Nevin E. Adams, JD

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[i] Even more disquieting is the approach taken to do so. Previous versions of the RCS have found “guessing” to be a leading response. This year’s RCS details a number of “thought about” categories which wouldn’t seem to be very substantive preparation.

[ii] Of course, steady followers of things like the RCS may have a developed a disquieting view on what retirement would actually be like.

[iii] In a nice “two-fer,” those reporting that they or their spouse participate in a retirement plan were significantly more likely than those who do not participate in such a plan to have tried a calculation (59% vs. 19%).

The Sure Not-So-Sure Thing

 By some accounts, I just spent the past week in “retirement”—driving around sightseeing, reading some good books, hanging out with family, and yes—even walking on a beach.

And I have to tell you—if that was retirement, I don’t know how I’m going to afford it.

Now, I realize that isn’t the stuff of most “real” retirements, though it is frequently the stuff of retirement planning brochures. My week was a family vacation, and it was spent doing the things that families do on vacations.[i] And it served as a stark reminder that while sitting on a beach doesn’t cost much, making arrangements to stay—and eat—in proximity to the aforementioned beach is a whole other financial consideration.

That said, when those actually in retirement are asked about their retirement confidence—well, it’s pretty high. According to the Employee Benefit Research Institute/Greenwald Associates annual Retirement Confidence Survey, 77% of current retirees report feeling either very (33%) or somewhat confident about having enough money to live comfortably throughout their retirement years. All of which suggests that if there’s a lot of uncertainty about what retirement will be like/cost, once you’re “in it”—well, you both have a sense of what it’s going to cost, and how much you have to cover it.[ii] That, by the way, despite the reality that the same RCS has for years found that significant numbers of individuals have found themselves in retirement through no choice of their own[iii]—sometimes due to health, sometimes due to employment-related decisions. 

Today we are looking at an unusual confluence of events: a tight job market in the middle of what has been termed the “Great Resignation,” surging inflation at rates not seen in a generation, and investment markets that, after a remarkable run-up—well, let’s just say it’s been rough on most 401(k) accounts. We’re getting the same kinds of investment advice we always do/give during such downturns—but one can’t help but wonder if it’s “different” this time—if the disruptions are anything but “transitory.”

“Disruptions” are the bane of a fixed income, of course. Just when you think you have it all balanced out, you have to spend (a lot) more for gasoline, pay a higher real estate tax bill, scrape up some money for a new prescription drug, or deal with the financial consequences of an unexpected medical emergency (or that of a loved one). That this happens at the same time that your investment portfolio is taking a sustained “hit” contributes to the sense of economic pessimism that garners so much press, polling and political aspirant attention in this election season. Without question, things cost more than they did (when you can find them on the store shelf), and those on fixed incomes (and that includes a growing number of current workers who perhaps haven’t gotten a pay increase in a while) have to make “adjustments”—often painful ones. And if all of this doesn’t warrant changes in financial plans, it certainly warrants a new level of discussion about them.  

Perhaps the only “sure” things are death and taxes after all—but the lesson for those of us still drawing a paycheck and planning for retirement is the importance of preparing for that third “sure” thing when it comes to retirement planning: uncertainty.

- Nevin E. Adams, JD

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[i] In fairness, we also spend a day tracking down the gravesites of some ancestors, and that probably isn’t on most vacation agendas!

[ii] It’s worth highlighting, of course, that workers reporting they or their spouse have money in a DC plan or IRA or have benefits in a DB plan from a current or previous employer are twice as likely as those without any of these plans to be at least somewhat confident (83% with a plan vs. 40% without one). 

[iii] In the 2022 RCS, 32% who retired earlier than planned say they did so because of a hardship, such as a health problem or disability, not related to COVID-19. Another 23% say that they retired due to changes at their company, but 38% say they could afford to retire earlier.

That Sinking Feeling...

You may have missed it – but we just passed the anniversary of the 1912 sinking of the now iconic RMS Titanic, at the time the world’s largest ocean liner.

Its passengers included some of the wealthiest people in the world, as well as a large number of emigrants seeking a new life in North America. On the ocean liner’s maiden – and only – voyage, it carried 2,244 people, 1,514 of whom would perish in the North Atlantic.

In hindsight, the Titanic seems a textbook example of a disaster that could have been avoided: There were plenty of warnings about sea ice (as many as six), but the ship was traveling near her maximum speed (though it’s a movie myth that they were trying to set a speed record) when lookouts sighted the iceberg that did her in with a “glancing” blow – that nonetheless opened 6 of her 16 compartments to the sea (the ship was designed to stay afloat with four of her forward compartments flooded). And let’s not forget that she went to sea with a lifeboat rescue system designed to ferry passengers to relief vessels and return for more, not to hold the entire ship’s company while help arrived.

‘Flat’ Lines

I’ve not yet seen anyone link the nation’s retirement prospects to the Titanic, though the headlines routinely portray its condition in similar tones. Even today, it’s hard to believe that, despite the enormous expenditure of time and treasure, the retirement plan coverage “gap” – the number of workers with access to a retirement plan at work – has basically been flat… for the past 40 years.

Now, we all know that most of that coverage gap is self-inflicted. Nothing stops those uncovered individuals from stopping by their local financial services institution to open a retirement savings account – or taking the time to go online or boot up an app to do the same without leaving the comfort of their home. But we also know the realities of human behavior. And yet, despite all the alarmist headlines about retirement gaps and shortfalls, where’s the sense of urgency (see below)?

We know that even modest income workers are 12 times more likely to save for retirement if they have access to a plan at work than they are to take the time to open that IRA. Little wonder that in recent years the Retirement Confidence Survey (RCS) published by the Employee Benefit Research Institute (EBRI) and Greenwald Associates has noted a strong relationship between retirement confidence and retirement plan participation. How strong? Well, workers reporting they or their spouse have money in a DC plan or IRA or have benefits in a DB plan from a current or previous employer are more than twice as likely as those without any of these plans to be at least somewhat confident – we’re talking 75% with a plan vs. 34% without.

It’s not that those who have an opportunity to save for retirement don’t have challenges – in making the sacrifices that allow them to save (while others don’t), in dealing with the inevitable emergency draws on finances (that elusive $400 that surveys routinely say individuals can’t amass in a crisis), or in trying to withdraw funds in a manner that will sustain them throughout retirement.
But having access to a retirement plan at work matters – and not just in confidence.

History tells us that the passengers on the Titanic had plenty of time to get to safety – but they ran short of lifeboats (more tragically, some of the lifeboats they did have weren’t fully utilized!).

Here’s hoping that an increased awareness of the impact of employer-sponsored plans encourages more to build these retirement “lifeboats” – and that those workers who are given the opportunity afforded by these programs, aided by tools like automatic enrollment, contribution escalation, and qualified default investment alternatives – take full advantage.

While there’s still time to do so.

- Nevin E. Adams, JD
 
Author’s Note: Several years ago, there was an NPR report titled, “Why Didn’t Passengers Panic on the Titanic?” in which David Savage, an economist and Queensland University in Australia, compared the behavior of the passengers on the Titanic with those on the Lusitania, another ship that sank at about the same time. Both were luxury liners, and both had a similar number of passengers and a similar number of survivors. The biggest difference in the reactions in these two similar circumstances, Savage concludes in the report, was time: The Lusitania, struck by a U-Boat torpedo, sank in less than 20 minutes, while the Titanic took approximately two and a half hours. Time enough, in the case of Titanic, according to Savage, for social order to prevail over “instinct.” 

Preparing for the Storm

If you live (or were travelling to) the upper east coast of the U.S. this week, odds are you spent some time making preparations for what looked to be (and by the time you read this likely is) a big winter storm.

We don’t always get that much time to prepare, of course – and sometimes when we do, those big storms don’t turn out to be very big after all. But you can generally count on lots of frenzied weather forecasters predicting snow-mageddon (even if they do offer some caveats), and at least one shot of the inside of a local grocery showing empty bread and milk aisles. Because, after all, who could go 48 hours without bread and milk?

Life is full of surprises – and though most of those are unaccompanied by a friendly meteorologist to help us anticipate them, one might well wonder why we let them “sneak” up on us without making better preparations.

Perhaps the most obvious is the topic of retirement preparation. Any day now the queen mother of retirement confidence assessments – the Employee Benefit Research Institute’s Retirement Confidence Survey (RCS) – will likely, as it has for more than a quarter-century now, tell us that Americans are, writ large, uncomfortable, uncertain, and unprepared for retirement. Nor is this some external assessment based on an objective evaluation of retirement preparations and needs. Rather, this survey, as are most of the industry survey progeny it has since inspired, is a self-reflection by survey respondents. Respondents including some who do not save, and others who do not save “enough,” and many, probably most, who haven’t even tried to guess at how much “enough” might be. Most will likely be concerned about their prospects for a financially secure retirement – but apparently not concerned enough to do very much about it.

Indeed, if history is a fair guide, I think it’s fair to say that the media coverage will likely rival that of an impending environmental apocalypse. Despite the researchers best efforts to provide some perspective on the findings, you can almost certainly count on an obsession as to how many haven’t yet accumulated $1,000 in savings – albeit without regard to their age, their income, or whether they have the encouragement and incentives of a retirement plan at work. If the report finds a drop in confidence, it will almost certainly be cited as a lack of confidence in a system that isn’t working. If, on the other hand, the report finds a surge in confidence – well, then you can expect reports that talk about how unfounded the confidence is.

As complicated as weather forecasting can be, it pales in comparison to trying to figure out what the financial “weather” for the next 30 years is going to be. Little wonder that those already in retirement tend to be more confident than those with decades of preparation still ahead. Still, what all too often gets lost in our criticisms of the current system is just how well it works.

Perhaps only three-of-four eligible to participate in such programs choose to do so, but on an employer-by-employer basis, participation rates north of 90% are not impossible to find – and that’s before the adoption of mechanisms like automatic enrollment, where those kinds of rates are common. Target-date funds have, in incredibly short order, gained the favor of plan sponsors and participants alike – with as yet incalculable benefits for those retirement investments. Those, and a whole new generation of retirement income alternatives are coming to market – alternatives that, unlike the prior generation, will benefit from the scrutiny of plan fiduciaries trying to make sure that a lifetime of accumulation isn’t decimated in a single moment. These innovations have come to light, and to market, because of the employer-sponsored system. By comparison, what kinds of innovations have been brought to those disciplined enough to set aside money in a retail IRA?

In the real world, a lucky few know how to save and invest properly; somewhat more have access to the counsel and advice of a trusted adviser. But for most of us, the workplace retirement program is our first and only “investment” account. It is the one place where even those with relatively small balances can have access to professional advice, alongside the opportunity to gain the purchasing power of a group.

None of which would be possible without the involvement of their employer, the funding of that company match, and the tax incentives that underpin a structure that gets workers of modest means to do what never seems to come naturally to human beings – to prepare for the storm before it’s upon us.

For those of you in the path of this storm, stay safe – and I look forward to seeing hundreds of you in Las Vegas at the 16th Annual NAPA 401(k) Summit!

- Nevin E. Adams, JD

this post originally appeared here.

5 Reasons to Plan and Save for Retirement Now

As April is National Financial Literacy month, and this is National Retirement Planning Week, those who work with retirement plan participants know it’s important to do the right thing(s) when it comes to retirement planning and savings.

But for those you are trying to help encourage, here are five reasons to plan and save for retirement now, and as an integral part of that financial plan.

Because you don’t want to work forever.

Seriously, no matter how much you love your job, if you want to stop working one day – and trust me, you will – you are going to have to think about how much income you will need to live after you are no longer working for a paycheck.

Because living in retirement isn’t “free.”

Many people assume that expenses will go down in retirement – and, for many, perhaps most, they do. On the other hand, there are changes in how we spend in retirement as well – and they aren’t always less. A recent report by the nonpartisan Employee Benefit Research Institute (EBRI) notes that health-related expenses are the second-largest component in the budget of older Americans, and a component that steadily increases with age. Health care expenses capture around 10% of the budget for those between 50–64, but increase to about 20% for those age 85 and over,” EBRI notes. And those spending shifts don’t take into account the possibility of a need or desire to provide financial support to parents and/or children.

Because you may not be able to work as long as you think.

In 1991, just 11% of workers expected to retire after age 65. Twenty-five years later, in 2016, 37% of workers report that they expect to retire after age 65, and 6% say they don’t plan to retire at all, according to the 2016 Retirement Confidence Survey. At the same time, the percentage of workers who say they expect to retire before age 65 has decreased, from 50% in 1991 to 24% in 2016.

However, the RCS has consistently found that a large percentage of retirees leave the workforce earlier than planned – nearly half (46%) in 2016, in fact. Many who retired earlier than planned say they did so because of a hardship, such as a health problem or disability (55%), or changes at their employer such as downsizing or closure.

The bottom line: Even if you plan to work longer, the timing of your “retirement” may not be your choice.

Because you don’t know how long you will live.

People are living longer, and the longer your life, the longer your potential retirement, especially if it begins sooner than you think. Retiring at age 65 today? A man would have a 50% chance of still being alive at age 81 (and a woman at age 85); a 25% chance of living to nearly 90; a 10% chance of getting close to 100. How big a chance do you want to take of outliving your money in old age?

Because the sooner you start, the easier it will be.

As recently as the 2015 RCS, fewer than half (48%) of workers report they and/or their spouses have tried to calculate – even a single time – how much money they will need to have saved by the time they retire so that they can live comfortably in retirement, a level that has held relatively consistent over the past decade.

Whether or not you feel fully financially “literate” now, you need to have a plan for your retirement. And there’s no time like the present to start.

- Nevin E. Adams, JD

On Retirement Plans and Plans for Retirement

When is a plan not a plan? When you have a retirement plan at work, apparently.

The good news is that the 2015 Retirement Confidence Survey shows a strengthening of retirement confidence — at least among those who had some kind of retirement plan (DB, DC or IRA). Indeed, among that group, the number saying they were very confident has doubled since 2013.

The bad news? Well, there doesn’t seem to be much in terms of substantive savings accumulations¹ or planning behaviors to account for this uptick in confidence.

Consider that fewer than half (48%) of workers report they and/or their spouse have tried to calculate — even a single time — how much money they will need to have saved by the time they retire so that they can live comfortably in retirement, a level that has held relatively consistent over the past decade.

In other words, while many have (or had) a retirement plan, they don’t seem to have a plan for retirement. 

On the other hand, workers reporting that they or their spouse have a DC, DB or IRA plan are twice as likely as those who do not have such a plan (60% vs. 23%) to have tried to do a calculation to estimate what they will need to finance retirement. And despite higher savings goals, workers who have done a retirement savings needs calculation are more likely to feel very confident about affording a comfortable retirement (33% vs. 12% who have not done a calculation). Moreover, worker households with a retirement plan are more likely than those without such plans to report having saved for retirement (90% vs. 20%).

That said, after a quarter century reading and studying the RCS, several things are clear:

Those who have made the effort² — even a feeble one — to figure out how much they need in retirement are more confident, and likely better off in the long run, since they tend to set higher savings goals.

Those who work with an advisor are more confident, and likely better off in the long run, since they also tend to set more realistic (i.e., higher) savings goals.

And perhaps most importantly, those who have access to a retirement plan are not only more confident, they are probably better off, since they tend to have actual sources of income on which to draw in retirement.

But ultimately, while having a retirement plan may provide some quantifiable increase in confidence about retirement, it’s having a plan for retirement — and acting on it — that grounds that confidence in reality.

Nevin E. Adams, JD

Footnotes

1. While much will likely be made of the relatively low/modest savings amounts reported by RCS respondents, without knowing individual factors like age or income, it’s impossible to discern whether those amounts are woefully inadequate, or reasonable. 

2. Those plans for retirement need to be reconsidered on a regular basis, since many are forced (or choose) to leave the workforce earlier than planned.

"Working" Capital

In response to concerns that tomorrow’s retirees will run short of money, we are often told to save more, to work longer, or — as often as not these days — to work longer and save more. Certainly working and saving longer can do wonders in terms of stretching your retirement nest egg.

It should probably come as no surprise that American workers are expecting to work longer. The Retirement Confidence Survey notes that in 1991, just 11% of workers expected to retire after age 65. This year that was up to 33% of workers, and another 10% who said they don’t plan to retire at all.

However, the timing of the retirement decision is often not within an individual’s control. A recent survey conducted by Merrill Lynch and Age Wave found that a majority of retirees surveyed (55%) say they retired earlier than they had expected — just 7% later than they expected. Similar trends were found in EBRI’s 2014 Retirement Confidence Survey (RCS), where while more than one-in-five (22%) of workers say they plan to wait at least until age 70 to retire, only 9% of current retirees actually did so. In fact, going back to 1991, the RCS has found that the median (midpoint) age at which retirees report they retired has remained at age 62 throughout this time.

In fact, the RCS has consistently found not only that a large percentage of retirees leave the work force earlier than planned (49% in 2014), but that many retirees who retired earlier than planned cite negative reasons for leaving the work force when they did, including:

• health problems or disability (61%);

• changes at their company (such as downsizing or closure (18%); or 

• having to care for a spouse or another family member (18%). 

The Merrill Lynch/Age Wave survey cautions that while early retirement used to be equated with financial success, today’s retirees say that health problems are now the top reason for their early retirement (37%). In fact, the surveys indicate that the issues that seem to be triggering earlier-than-expected retirements not only serve to cut short working (and savings) careers, but bring with them additional expense.

Retirement planning requires a lot of assumptions — things like how much we’ll need to live, the return(s) on our investments, how long we’ll live in retirement, and when that retirement will begin.

However, the data also suggest that the assumption that we’ll be able to work to — much less through — the traditional retirement age of 65 may be one of the more optimistic.

- Nevin E. Adams, JD

Look-Back "Provisions"

My wife and I recently celebrated our wedding anniversary.  It was a special day, as they all are, but as I thought back on the events of our life together, I was struck by the realization that I have now been married for about half my life.  Not that I didn’t expect to remain married, or to live this long; if someone had asked on my wedding day if I thought I’d still be alive and married this many years hence, I’m sure that I would have expressed confidence, likely strong confidence, in both outcomes.  However, if someone on that same day had asked me to guess then where I would be living now, what I would be doing, or what my income would be (or need to be)—well, my responses would likely have been much less certain.

In just a few weeks we’ll be making preparations to launch the 2015 Retirement Confidence Survey (RCS)[i].  It is, by far, the longest-running survey of its kind in the nation.  Indeed, this will be its 25^th year.  Think for a moment about where you were a quarter century ago, what (or if) you thought about retirement, what preparations you had made… then consider for a moment what you have done in the years since.  Are you where you thought you would be?  Are you more – or less – confident about your prospects for a financially secure retirement?  Have you planned toward a specific retirement date or age?  Has that changed over the years – how, and why?

Through the prism of that near-quarter-century window, the RCS provides a unique perspective to view in the here and now, and to look back over time on how American workers – and retirees – have viewed their preparations, readiness, and confidence about retirement.  It has also provided those who are working to help improve and/or ensure those prospects insights into those collective preparations, or lack thereof. Moreover, the RCS has offered the ability to gauge potential responses to specific regulatory, administrative and legislative alternatives, both real and envisioned – a critical real-world filter to balance the theoretical world in which academics often imagine we live and respond, or as they often assume, won’t respond[ii].

Retirement confidence is, of course, a state of mind at a point in time, unique to individual situations, and as past waves of the RCS have shown, it’s not always based on a realistic assessment of where you are or what lies ahead.  That said, the RCS offers more than a sentiment snapshot, and those who look not only to feel better about retirement but to have a basis for that feeling need look back no further than the pages of that report.

The RCS has outlined the impact that real-world actions can have on confidence: having saved for retirement, having sought professional investment advice, having made a determination as to how much is needed for retirement, and – as last year’s RCS findings emphasized — having some kind of retirement savings account.  Little wonder that those who have undertaken those steps are more confident of the outcomes.

It’s one thing to anticipate that eventual cessation of paid employment, and something else altogether to make the preparations – to choose to save – and to be confident that you’ll be able to look back with satisfaction one day knowing that you have the financial resources to enjoy it.

• Nevin E.  Adams, JD

Your organization can be part of the 25^th Retirement Confidence Survey.  Survey underwriters serve as a member of the survey’s Advisory Board, along with the opportunity to participate in the review and update of the 2014 questionnaire; have the opportunity to participate in a pre-release, underwriters’ briefing on the results of the survey; are able to utilize the survey materials and findings for your research, marketing, communications, and product-development purposes – and you’ll be acknowledged as an underwriter of this, the 25^th Retirement Confidence Survey, among other benefits.  For more information, contact us at nadams@ebri.org.

[i] More information about the Retirement Confidence Survey is available online here.

”Background” Check

We’ve never invested in a vacation home, but for a number of years now, my family has made relatively regular trips to Gettysburg, Pennsylvania. And while we’ve visited many places over the years, Gettysburg remains special, both because there are places that we know, and have visited many times, and because there are (still) things to discover. Over time we’ve also shared that experience with friends and members of our extended family, and their participation adds an additional, fresh perspective, even to sites we have visited many times before.

On March 18, EBRI and Greenwald & Associates will release the results of the 24^th annual Retirement Confidence Survey (RCS). With a perspective longer than many retirements, it’s likely to garner a lot of attention, as well it should. The focus tends to be on retirement confidence (or the lack thereof), specifically at the extremes—those “very” and “not at all” confident in their prospects for a financially comfortable retirement.

Attention will also likely be given to what can be done to improve the levels of confidence. Previous iterations point to some consistent factors: having more retirement savings is perhaps the most obvious connection to retirement confidence, as is participation in a workplace retirement savings plan (which, as you might expect, is linked to having more retirement savings). The RCS has also found that something as fundamental as having taken the time to do a calculation of retirement needs has a positive effect on confidence, even though those who had done such an assessment tend to set higher savings goals.

For this year’s RCS, as we do every year, we make it a point to ask a battery of consistent questions, to develop trend lines that allow us to see how attitudes change over time, throughout a wide variety of market and regulatory cycles, not to mention the advent of transformative technologies such as the Internet. Of course, we also include certain topical questions to get a current sense of worker—and retiree—responses to things such as prospective tax law changes, plan design features like automatic enrollment and contribution acceleration, and the use of various technologies in retirement planning. We’ve asked not only how much they have saved, but how much they think they should have saved, and—more recently—how much they think they should be saving now to provide that financially secure retirement.

Perhaps most importantly, we pose those questions to both current workers and current retirees, so as to gain a unique and informative perspective on the realities of retirement from those already living it, alongside the expectations of those for whom retirement remains a future event.

There’s a particular spot on the Gettysburg battlefield where we always try to take a family picture—the background doesn’t change, but it’s interesting to watch how much we’ve changed over the years.

Similarly, the RCS provides an invaluable and consistent background—along with a fresh and interesting perspective of today’s environment, as well as insights on future trends—that can help us all better prepare for a more financially secure retirement.       

- Nevin E. Adams, JD 

Note: The results of the 2014 Retirement Confidence Survey (RCS) will be available at 8 a.m. ET on Tuesday, March 18, at www.ebri.org.  Information and findings from prior surveys are available at www.ebri.org/surveys/rcs.

Believe Able

In that holiday classic “Miracle on 34th Street,” a man named Kris Kringle (who claims to be “the one and only” Santa Claus) winds up having his sanity challenged in court. Ultimately, the judge dismisses charges that would have resulted in Kringle’s institutionalization—not because he actually is persuaded to believe by the evidence that Kris is the REAL Santa Claus, but because he finds it convenient to demur to the determinations of a higher authority (in this case, the US Postal Service).

While belief may not always be a portent of reality, it can be a powerful force, as any parent who has ever nurtured Santa’s existence well knows.

The 2013 EBRI/Greenwald & Associates Health and Voluntary Workplace Benefits Survey¹ (WBS) reveals that most workers believe their employers or unions will continue to provide health care insurance— although there have been employer surveys indicating that, at some point in the future, some may not. Not that workers fail to appreciate future uncertainties: While 46 percent of worker respondents to the WBS indicate they are extremely or very confident about their ability to get the treatments they need today, only 28 percent are confident about their ability to get needed treatments during the next 10 years.

Similarly, when it comes to retirement, the Retirement Confidence Survey² has, for nearly a quarter century now, shown a remarkable resilience in worker confidence regarding their financial future in retirement, belying the aggregate savings levels indicated in that same survey. Over the course of that survey, we’ve seen confidence wax stronger and then wane―and while we’ve seen distressingly low levels of preparation, more recently we’ve also seen a growing awareness of the need for those preparations. The RCS has also documented a consistent trend in workers believing they will be able to work, and to work for pay, longer than the experience of retiree respondents suggests will be a viable option.

Next month we’ll field the 24th annual version of that Retirement Confidence Survey, where we will (among other things) seek to gain a sense of American workers’ preparation for (and confidence about) retirement, as well as some idea as to how those already retired view the adequacy of their own preparations. Is a lack of worker confidence about retirement finances a troubling indicator? Or does it suggest that they have a greater appreciation for the need to prepare?

Later in the year the WBS will, as it has since 1998, probe sentiments about health care and voluntary benefits: Will workers sense a continued commitment by their employers and unions to provide health care coverage? If not, how might that affect their commitment to their work and their workplace? How might concerns about health coverage affect and influence retirement preparations?

In the cinematic “Miracle,” there seems to be a connection between believing something will happen and its reality. Little Susan Walker goes so far as to intone “I believe… I believe… It’s silly, but I believe!” even as she stumbles upon the home of her dreams.

In the real world, the linkage between belief and reality isn’t generally so convenient. And employers, providers, and policy makers alike, know that being able to anticipate those potential gaps between belief and a future reality can be critical.

- Nevin E. Adams, JD

In addition to providing financial support to two of the industry’s most highly regarded employee benefit surveys, underwriters of the RCS and WBS have access to special early briefings on the findings, in addition to a number of other benefits. If you’d like to know more, email Nevin Adams at nadams@ebri.org

You can find additional information about the RCS online here and information about the WBS (previously called the Health Confidence Survey) online here.

¹ See “2013 Health and Voluntary Workplace Benefits Survey: Nearly 90% of Workers Satisfied With Their Own Health Plan, But 55% Give Low Ratings to Health Care System,” online here.

² See “The 2013 Retirement Confidence Survey: Perceived Savings Needs Outpace Reality for Many,” online here.

Thinking "Caps"

In this era of “reality” TV, where the “antics” (and worse) of the formerly rich and infamous are on display in ways that could not even have been imagined a decade ago, I seem to find myself increasingly shaking my head and muttering “what were they thinking?” The answer, as often as not, seems to be “they weren’t.”

And some, looking at the retirement savings behaviors and expectations of the American workforce over the years, might well wonder—and perhaps respond—the same way.

Whether you are an employer trying to motivate workers to avail themselves of a new benefit (or to better utilize an existing one), an advisor looking to improve their portfolio diversification, a provider interested in expanding acceptance of your product set, or a regulator trying to fine-tune (or overhaul) the current legal boundaries, sooner or later you find yourself wanting (perhaps NEEDING) to know “what are ‘they’ thinking?”

In just a few weeks, we’ll begin development of the 24th Retirement Confidence Survey, the longest-running annual retirement survey of its kind in the nation. As you might expect, the survey contains a core set of questions that is asked annually, allowing key attitudes and self-reported behavior patterns to be tracked over time. We ask both workers and retirees about their confidence in their retirement income prospects, including Social Security and Medicare; how much money have they saved for their future and where they are putting their money; who they turn to for retirement investment information and advice; and seek insights on why they are not saving more and what would motivate them to do so. The survey also allows us to gain the perspective on those issues from those already in retirement, providing an invaluable reality “check” between active workers and current retirees on expectations such as retirement age, spending, and retirement financial needs.

We’ve also asked forward-looking questions, tried to gauge worker interest in using technology, social media, and various investment products to manage their retirement accounts, and gotten valuable insights on how specific regulatory and legislative changes might affect their future savings behavior—insights that we’ve been able to incorporate with our extensive databases and modeling capabilities to quantify the potential impact on overall retirement savings and security.

In a very real sense, the Retirement Confidence Survey provides a unique window through which we can both examine long-term trends and sentiments, and still glean a sense of the future—an appreciation both for what has been, and for what might yet be.

It’s a chance to find out not only “what are they thinking?” but uncover the actions that could influence, if not drive better behaviors in the future.

- Nevin E. Adams, JD

If your organization would like to participate in the design of the 2014 Retirement Confidence as an underwriter, please contact me at nadams@ebri.org  Underwriters not only provide input on the survey questions, but have access to the raw data, are briefed on its findings prior to publication; have the ability to utilize the survey materials and findings for research, marketing, communications, and product-development purposes; and are acknowledged as underwriters in the final survey report.

More information about the Retirement Confidence Survey, as well as links to previous iterations of the RCS, are available at http://www.ebri.org/surveys/rcs/

"Lead" Times

There’s an old saying that you can “lead a horse to water, but you can’t make him drink.” It’s a sentiment expressed by many a benefits manager who has devoted significant time and effort to plan design, only to find the adoption rate by individual workers to be “disappointing.” And yet, in the retirement savings context, there’s ample evidence that individuals who have access to a savings plan at work do, in large part, take advantage of that opportunity.

Consider that average participation rates in excess of 70 percent are commonly reported in industry surveys, and that’s for plans that don’t take advantage of automatic enrollment. Moreover, previous EBRI research has pointed out that merely having access to a defined contribution plan at work can have a significant positive impact on one’s retirement readiness rating, simply because it greatly enhances the likelihood that those individuals WILL participate (1).

Those who say that you can only “lead a horse to water” might well expect that a horse will drink when it’s thirsty, or when it needs water—but equine experts will tell you that many horses refuse to drink when they need to most, especially in times of competition, illness, travelling or stress. So, while you may not be able to make them drink, it’s generally important for their health and well-being to find ways to encourage them to do so—adding a little salt in their diet, for instance, or putting an apple in their water bucket.

Similarly, all workers don’t have access to retirement plans at work, and those who do don’t always take full advantage of it—with some saving below the employer match levels of their plan, many older workers failing to take advantage of catch-up contributions, and a number of automatically enrolled workers leaving those relatively low initial default contribution rates in place.

There are, however, steps employers can take to help: Prior EBRI research has documented the profound influence of plan design variables, as well as employee behavior in auto-enrollment 401(k) plans (2). Not only the impact that automatic enrollment can have on retirement readiness, but what setting that initial default rate at 6 percent, rather than the “traditional” 3 percent (now codified in the Pension Protection Act of 2006) could mean in terms of improving retirement readiness “success.(3)”

For example, using actual plan-specific default contribution rates, and assuming an automatic annual deferral escalation of 1 percent of compensation; that employees opted out of auto-escalation at the self-reported rates from the 2007 Retirement Confidence Survey; and that they “started over” at the plan’s default rate when they changed jobs and began participation in a new plan; along with the assumption that the plan imposed a 15 percent cap on employee contributions, the EBRI analysis found that more than a quarter (25.6 percent) of those in the lowest-income quartile who had previously NOT been successful (under the actual default contribution rates) would then be successful (4) as a result of the change in deferral percentage.

As benefit plan professionals know, and as EBRI research has quantified, plan design can be effective at doing more than just leading workers to the opportunity to save for retirement—it can help them make decisions that improve their chances of success.

Nevin E. Adams, JD

[1] See “’Retirement Income Adequacy for Today’s Workers: How Certain, How Much Will It Cost, and How Does Eligibility for Participation in a Defined Contribution Plan Help?” online here.  

[2] See “The Impact of Automatic Enrollment in 401(k) Plans on Future Retirement Accumulations: A Simulation Study Based on Plan Design Modifications of Large Plan Sponsors,” online here.  

[3] See “Increasing Default Deferral Rates in Automatic Enrollment 401(k) Plans: The Impact on Retirement Savings Success in Plans With Automatic Escalation,” online here.  

[4] In this case, success equals a real replacement rate of 80 percent or more when combined with Social Security.

(Un) Realistic Expectations

This past weekend I joined the throngs of humanity that went to the theaters to see Iron Man 3. I grew up reading Marvel Comics, and, for the very most part, seeing those characters brought to life on the big screen has been a real treat.

I had been curious about the new Iron Man movie for some time, but wasn’t sure if it could live up to expectations based on the prior films. It’s hard to escape the endless promotions for these summer blockbusters, but I made a conscious effort to do so, and even avoided reading the reviews of the film until after I had had a chance to see it for myself. That decision involved some financial “risk” as anyone who has taken a family to the theater recently can attest.

There have, however, been disappointments along the way―sometimes the acting was bad, sometimes the storyline was (unintentionally) laughable, and sometimes the movie fell short of what I had anticipated simply because my expectations were set so high.

Over the years, the Retirement Confidence Survey¹ has helped uncover a number of interesting and intriguing perspectives about retirement, real and imagined―and no small number of what would appear to be unrealistic expectations about retirement: expectations around how long individuals think they will be able to work, for example, or that they will be able to work for pay after retirement. Additionally, there have been indications that more individuals expect to receive a pension than would be suggested by the data regarding how many American workers are actually covered by such programs.

The RCS has found that men and women have similar expectations for the age at which they plan to retire, and that, despite the fact that women tend to live longer and face higher health care expenses in retirement due to their greater longevity, women were statistically as likely as men to think they will need to accumulate less than $250,000 for retirement. More recently, an EBRI analysis indicated that married couple respondents to the RCS were citing retirement savings targets that were better suited for single individuals.²

Much of the focus around the release of the Retirement Confidence Survey was, as one might expect, on retirement confidence―an individual’s sense of their confidence in having enough money to live comfortably throughout retirement. And, despite some of the optimistic assumptions cited above, that confidence was mired at historic lows for the RCS, which has tracked those sentiments for nearly a quarter-century.

Avoiding the incessant summer blockbuster pre-release promotions and commercials takes some effort. In hindsight, going to see the movie with no real expectations beyond that set by prior films was a good decision, certainly from the standpoint of my enjoyment of the newest version.

Admittedly, planning for that financially comfortable retirement can appear a daunting task, one readily shunted aside in favor of more current, and what seem to be more pressing tasks. Despite the ready availability of free planning tools, such as the Ballpark E$timate,³ the RCS indicates that many have never made even a single attempt―have not even guessed―at how much they might need for retirement. Yet EBRI analysis indicates that those who have taken the time to do so set better targets than those who haven’t.

Ultimately, not having established a set of expectations can make for a pleasant surprise at the cinema―but it’s likely to result in a surprise of a completely different sort in retirement.

Nevin E. Adams, JD

¹ The 2013 Retirement Confidence Survey is available online here.

² See “A Little Help: The Impact of On-line Calculators and Financial Advisors on Setting Adequate Retirement-Savings Targets: Evidence from the 2013 Retirement Confidence Survey,” online here.

³ The BallparkE$timate® is available online here. Organizations interested in building/reinforcing a workplace savings campaign can find a variety of free resources there, courtesy of the American Savings Education Council (ASEC). Choose to Save® is sponsored by the nonprofit, nonpartisan Employee Benefit Research Institute Education and Research Fund (EBRI-ERF) and one of its programs, the American Savings Education Council (ASEC). The website and materials development have been underwritten through generous grants and additional support from EBRI Members and ASEC Partner institutions.

"Show" Time

Though there’s precious little worth watching on television these days, I’ll confess to having developed a fondness for the Sunday night shows that have sprung up all over cable television—series like Downton Abbey, Mad Men, Hell on Wheels, and yes, The Walking Dead. These not only keep me up on Sunday nights, but looking forward to the end of the weekend.

The “hiatus” gaps between these cable seasons are long enough that it can be hard to remember where the story line left off, though these days the standard seems to be to pick up the characters’ lives at a different point in time. Downton Abbey closes one season at the start of WWI, and opens the next in the middle of that conflict, for example—or Mad Men closes a season with the key characters having decided to split off from a stifling new British parent firm, and the next season opens with their new venture already operating as a full-fledged advertising firm. These storyline “jumps” can be a bit disorienting, but time (and the storyline) marches on.

A year ago, the Retirement Confidence Survey, conducted by EBRI and Greenwald & Associates, found that Americans’ confidence in their ability to afford a comfortable retirement was weighed down by concerns about the economy and job security, “stagnant” at record low levels. Those who participated in workplace retirement savings plans were more confident, as were those who had taken the time to estimate their retirement savings needs. A growing number of current workers were planning to work past the traditional retirement age of 65—and yet, in reality, most current retirees had left the workforce earlier than planned, usually for reasons beyond their control.

Since then, we’ve had a presidential election, seen the Supreme Court uphold a new federal health care law, crept up to the edge of a fiscal cliff (and stumbled back a bit), seen unemployment rates stabilize, and stock markets gain ground. How might those events impact or influence Americans’ preparations or retirement confidence? Have they sought—and followed—professional guidance? How much DO Americans think they need to save? And how much progress have they made?

For almost a quarter-century now—with no hiatus—the RCS has meticulously tracked the evolving trends in Americans’ confidence about retirement. Next week we’ll unveil the results of the 23rd annual Retirement Confidence Survey (RCS), the longest-running annual retirement survey of its kind in the nation. You can count on it providing some fascinating insights on where workers and retirees are, where they’ve been, and where we all need to be—with a growing sense of where we want to be tomorrow.

- Nevin E. Adams, JD

Note: The results of the 2013 Retirement Confidence Survey (RCS) will be available at 8 a.m. ET on Tuesday, March 19, at www.ebri.org Information and findings from prior surveys are available at www.ebri.org/surveys/rcs/2012/