Americans and Retirement: 3 Worrying New Findings

Source: Thinkstock

Source: Thinkstock

According to the 2014 Retirement Confidence Survey, which was published by the Employee Benefits Research Institute this March, one-third of Americans have less than $1,000 saved for retirement. Moreover, the researchers – Ruth Helman, Nevin Adams, Craig Copeland, and Jack VanDerhei — found that 60 percent of workers have less than $25,000 put away, and perhaps worst of all, that only 44 percent of survey respondents said that they or their spouses have actually taken the time to calculate how much money they will need to live comfortably through retirement.

The report is consistent with a growing body of data that indicates that most Americans are woefully underprepared for retirement. In fact, Mark Fried, president of TFG Wealth Management, told USA Today that the EBRI report “highlights the impending retirement crisis that we will face over the next 20 years.”

The EBRI report avoids any mention of a crisis, but it does call attention to the fact that, “A sizable percentage of workers report they have virtually no savings and investments,” a piece of information that screams bad news down the line. Here are a couple of other pieces of information that help put America’s retirement environment into context.

1. Confidence by plan ownership

When it comes to retirement planning, there are two groups of people: the “haves” and the “have nots.” The survey found that although aggregate confidence among workers is up, the increase is mostly attributable to those toward the top of the income ladder ($75,000 and above) and to those who already have a retirement plan, like an IRA or a 401(k).

This is pretty obvious at face value. Moreover, ownership of a retirement account like an IRA or 401(k) generally implies higher income — just as higher income generally implies ownership of an IRA or a 401(k). According to the Federal Reserve’s 2010 survey of consumer finances, just 11.2 percent of those in the lowest income quintile had a retirement account compared to 90.1 percent ownership among the highest 10 percent.

This is because cost of living and day-to-day expenses are the primary reason why workers are not saving for retirement. Fifty-three percent of working respondents to the retirement confidence survey said that cost of living was the number one reason they do not save.

There’s a dramatic difference in confidence between those who have plans and those who don’t. In 2014, just 11 percent of people with a plan felt not at all confident that they will have enough money to live comfortably throughout retirement, down from 21 percent in 2013, while 46 percent of those without a plan are not at all confident, up from 44 percent in 2013.

Plan Confidence

2. Confidence among retirees

Overall, more retirees are feeling more confident that they will have enough money to live through retirement. The report found that 28 percent of survey respondents who were retirees were very confident, up from 18 percent in 2013. The number of people not at all confident increased slightly from 14 percent to 17 percent, statistically unchanged.

Retiree confidence has become slightly more polarized since 2009. Both extreme ends of the spectrum — those who are very confident and those who are not at all confident — have increased as a share of total retirees over the past five years, while the share of those in the middle has declined. One likely catalyst is the post-crisis rally in equities, which would have been a boon for anyone with a significant equity portfolio.

This group includes some but by no means all retirees. According to the Fed’s 2010 consumer finance survey, just about 41 percent of those aged 65 and over have a retirement account (which likely contains equity investments), while about 18.1 percent are invested directly in the stock market.

Retiree Confidence

3. Debt

Americans have a long, troubled history with debt. According to the retirement confidence survey, 48 percent of current workers and 44 percent of retirees report having some sort of problem with debt. Moreover, 24 percent of workers and 17 percent of retirees report that their debt situation is worse now than it was five years ago, suggesting that both workers and retirees have had to borrow money in order to keep themselves afloat during the recovery. Further, 20 percent of workers and 16 percent of retirees report that debt is a major problem for them.

What is perhaps most troubling about the debt situation in the U.S. is that it’s apparently getting worse among retirees. The number of retirees who described their level of debt as a major problem has increased significantly since 2005 while the number reporting that debt is not a problem has declined. Among workers over the same period, the rates have not changed very much.

Debt

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