Retirement confidence remains at low level
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American workers are no more confident about being able to afford a comfortable retirement now than they were two years ago, despite the economic recovery and the strength on Wall Street, a Washington, D.C., research group reports.
The Employee Benefit Research Institute said 28 percent of workers are not at all confident about having enough money in retirement, about the same level of discomfort expressed in 2011. Only 13 percent of those surveyed were very confident about their retirement.
The figures are in stark contrast to those reported for 2007, when retirement confidence peaked in advance of the Great Recession. Back then, 27 percent were very confident and only 10 percent were not at all confident.
"Retirement confidence has plateaued at historically low levels," said the institute's Jack VanDerhei, coauthor of the report.
The figures come from a January survey of more than 1,200 workers and retirees by the institute and Matthew Greenwald & Associates, a Washington, D.C., market research firm. This is the 23rd year the survey was conducted.
Only 66 percent of participants said they and/or their spouse have saved for retirement. Of those who indicated how much they have in savings and investments, 57 percent have set aside less than $25,000, excluding the value of their home or pension benefits, with 28 percent reporting they have saved less than $1,000.
About half definitely could come up with $2,000, if they were faced with an unexpected problem within the next month.
The report said nearly all the decline in retirement savings in recent years occurred among workers with household incomes of less than $35,000. Only 24 percent of those reported they have saved for retirement, down from 49 percent in 2009. The savings rate among those with household incomes of $75,000 or more was basically unchanged at 94 percent.
Mr. VanDerhei said much of the chronic lack of retirement confidence can be attributed to conceptions of how much the workers think they need to save.
Of those surveyed, 20 percent said they need to set aside 20 to 29 percent of their income while another 23 percent put the figure at 30 percent or more. Yet only 46 percent said they or their spouse have tried calculating how much they will need.
Workers cited the cost of living and day-to-day expenses as the main reasons why they either do not contribute to their employer's retirement plan or contribute more to it.
While more than 40 percent of workers identified job insecurity or making ends meet as their most pressing financial issue, only 2 percent said their biggest financial priority was saving for retirement.
However, many of the workers said they would not object to forced saving if their employer took advantage of a 2006 federal law that allows employers to automatically enroll workers in 401(k) accounts.
The law allows workers to opt out, but studies show that most do not.
Asked what they would do if their employer automatically enrolled them in the company retirement plan and put 6 percent of their paycheck into it, 44 percent said they would continue contributing at that rate. Only 16 percent would opt out.
First Published March 20, 2013 12:00 am