Confidence Builders

By Nevin Adams, EBRI

AdamsI’ll never forget my first day of driver’s ed class.  This was at a time when it was still part of the “regular” school curriculum, and we were placed in groups based on whether or not we had actually driven a car before.  Now, at the time, the extent of my driving was no more than backing the family car up and down our short driveway.  But driving looked easy enough, and my friends were in the “having driven” group, so I confidently “fudged” the extent of my experience and shortly found myself behind the wheel of the driver’s ed class car, along with my high school basketball coach/instructor and a couple of my friends in back.

To make a long story short, there was quite a bit of difference between backing a car up and down a driveway and navigating a car on the open road.  And, but for the extra brake on the instructor’s side of the vehicle, I might have spent my first driver’s ed class waiting to be pulled out of a ditch, my confidence notwithstanding.

The recent release of the 23rd annual Retirement Confidence Survey (RCS) got a LOT of attention.1  The headlines were mostly about Americans’ lack of confidence in their prospects for a financially secure retirement; indeed, the percentage “not at all confident” hit an all-time high for the RCS, while the percentage “very confident” remained at the all-time low it notched a year ago.  A striking number of inquiries about the report focused on what could be done about retirement confidence.

As it turns out, there are several things that the study linked to higher confidence: having more retirement savings is perhaps the most obvious connection, and so is participation in a workplace retirement savings plan (which was also linked to larger savings balances2).  However, the RCS also found that something as fundamental as having taken the time to do a retirement needs assessment made a positive difference in confidence3 – even though those who had done such an assessment tended to set higher savings goals.4  However, fewer than half of workers responding to the RCS have completed this assessment, and many of those who have made an attempt to figure out how much they might need – guess.5

Still, asked how much they need to save each year from now until they retire so they can live comfortably in retirement, one in five put that figure at between 20 percent and 29 percent, and nearly one-quarter (23 percent) cited a target of 30 percent or more.  Those targets are larger than one might expect, and larger than the savings reported by RCS respondents would indicate.  They do, however, suggest that some are beginning to grasp the realities of their situation – a realization that could be weighing on their confidence in the future, even as it lays the foundation for change.

Because, what really matters is not how confident you feel, but whether you have a reason to feel confident.

Notes

1 See The 2013 Retirement Confidence Survey: Perceived Savings Needs Outpace Reality for Many

2 According to the 2013 RCS , workers who participate in a retirement savings plan at work (45 percent) are considerably more likely than those who are offered a plan but choose not to participate (22 percent) or are not offered a plan (18 percent) to have saved at least $50,000. These participants are much less likely than others to report having saved less than $10,000 (20 percent vs. 46 percent who choose not to participate and 50 percent who are not offered a plan).

3 A great place to start figuring out what you’ll need is the BallparkE$timate®, available online at www.choosetosave.org.  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.

4 The RCS found that 31 percent who have done a calculation, compared with 14 percent who have not, say they are very confident that they will be able to accumulate the amount they need, while 12 percent who have not done a calculation, compared with 3 percent who have, report they are not at all confident in their ability to save the needed amount.

5 Workers often guess at how much they will need to accumulate (45 percent), rather than doing a systematic, retirement needs calculation, according to the RCS, while 18 percent indicated they did their own estimate, another 18 percent asked a financial advisor, 8 percent used an on-line calculator, and another 8 percent read or heard how much was needed.

“Show” Time

By Nevin Adams, EBRI

Adams

Adams

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.

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/

EBRI’s Retirement Confidence Survey to be Released March 19

On Tuesday, March 19, 2013, the nonpartisan Employee Benefit Research Institute (EBRI) and Mathew Greenwald & Associates, Inc., will release results of the 2013 Retirement Confidence Survey (RCS), the nation’s longest-running and most comprehensive study of the attitudes and behavior of American workers and retirees toward all aspects of saving, retirement planning, and long-term financial security.

This is the 23rd annual RCS and will contain long-term trend data going back to earlier RCS results. Recent waves of the RCS have measured record-low levels of public confidence in the ability to afford retirement.

A teleconfrence briefing for the news media will be held 11:00–11:30 a.m. E.T. TUESDAY, MARCH 19. Reporters wishing to join the conference call or get RCS materials should contact Steve Blakely, EBRI, blakely@ebri.org, 202/775-6341.

The First Step

By Nevin Adams, EBRI

Adams

Adams

For me, the hardest part of writing has always been that first sentence.

I don’t usually struggle with the topic, the angle to take, the length, the clever title, nor even the research and analysis that might be required to support the point(s) being made. All of those take time, energy, and effort, of course—but nothing like the effort I put into crafting those first few words. What makes that all the more ironic, particularly in view of the energy expended, is that the first sentence I wind up using often isn’t the one with which I began. It’s just the one that keeps me from getting started.

Aside from strained finances, “getting started” is perhaps one of the most commonly cited problems in saving. Most know the importance of saving, and appreciate the risk(s) of not having an emergency fund, or lacking adequate retirement savings. We have goals—both short- and long-term—that can be quantified, the ability to take advantage of payroll deductions, and/or regular account transfers from checking to savings, that can make savings easier. And yet, certainly outside of the structures of workplace-based retirement plans, many don’t save as they know they should.

According to the 2012 Retirement Confidence Survey (RCS),¹ workers who contribute to a retirement savings plan at work (45 percent) are considerably more likely than those who are not offered a plan (22 percent) to have saved at least $50,000, and were much less likely to report having saved less than $10,000 (24 percent vs. 63 percent who are not offered a plan).

There are a lot of “reasons” to put off savings. For some it’s the inconvenience of having to fill out a form, stop by the bank, or logging on to a website. Not knowing how much to save stymies some, while others are “stopped” by the size of a savings goal that may seem insurmountable. Still others are thwarted by what are, or appear to be, more pressing financial concerns.

In just a couple of weeks America Saves Week² will draw heightened attention to the benefits of saving—the importance of setting a goal, making a plan, and taking advantage of ways to save automatically—not just for one week, but for the rest of the year as well.

Like that first sentence, when it comes to saving, sometimes all you need is to get started. That starts with a decision to Choose to Save®³—and there’s no better time to start on that path to Save For Your Future® than today.

Notes

Organizations interested in building/reinforcing a workplace savings campaign can find free resources at www.asec.org including videos, savings tips, and the Ballpark E$stimate® retirement savings calculator, courtesy of the American Savings Education Council (ASEC).

¹ Information from the 2012 Retirement Confidence Survey (RCS) is available online here. Organizations interested in underwriting the RCS can contact Nevin Adams at nadams@ebri.org  

² America Saves Week is an annual event where hundreds of national and local organizations promote good savings behavior and individuals are encouraged to assess their own saving status. Coordinated by America Saves and the American Savings Education Council, America Saves Week is an annual opportunity for organizations to promote good savings behavior and a chance for individuals to assess their own saving status. ASEC is a program of the Employee Benefit Research Institute (EBRI). Over 750 organizations have signed up to participate in the 7th annual America Saves Week, taking place February 25–March 2, 2013, in a nationwide effort to help people save more successfully and take financial action. More information is available at www.americasavesweek.org

³ 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.

“Grayed” Expectations?

By Nevin Adams, EBRI

Even the best retirement planning requires a fair number of assumptions: the age at which you hope to retire, for one thing; the amount of income that living in retirement will require; the length of time over which your retirement will last; the rate of return on your savings prior to, and following, retirement; the sources of retirement income that will be available to you, and in what amount(s).

Consider that in the 2012 Retirement Confidence Survey while worker confidence in having enough money to pay basic expenses in retirement wasn’t exactly high (only 26 percent were very confident), workers were noticeably less likely to feel very confident about their ability to pay for medical expenses after retirement (13 percent) and even less likely to feel very confident about paying for post-retirement long-term care expenses (9 percent) — levels that have remained statistically unchanged since 2010.

Indeed, the lack of employment-based retiree health insurance may result in unanticipated expenses in retirement. In the 2011 RCS, one-third of workers reported that they expected to receive this type of insurance from an employer (36 percent), though only 27 percent of retirees in that survey actually received it.

Earlier research found little impact of reductions in coverage on retirees, but the report notes that that may be because initial changes employers made to retiree health benefits affected future retirees, rather than those retired at the point of change.  A recent EBRI Issue Brief highlights that, over time, more and more retirees have “aged into” those program changes, resulting in the greater impact found in more recent studies.  The report also notes that most employers that continue to offer retiree health benefits have made changes in the benefit package they offer, changes that impact both the cost and availability of the benefit, including raising premiums that retirees are required to pay, eliminating employer subsidies, tightening eligibility, limiting or reducing benefits, or some combination of these.

However, as that Issue Brief also notes, very few private-sector employers currently offer retiree health benefits, and the number offering them has been declining, even in the public sector:  Between 1997 and 2010, the percentage of non-working retirees over age 65 with retiree health benefits fell from 20 percent to 16 percent.  Still, expectations seem to outpace reality; in 2010, 32 percent of workers expected retiree health benefits, while only 25 percent of early retirees and 16 percent of Medicare-eligible retirees actually had them.

Circumstances change, expectations matter, and retirement planning that relies on flawed or outdated expectations can, unfortunately, leave us short of where we need to be.

Notes

See Employment-Based Retiree Health Benefits: Trends in Access and Coverage, 1997‒2010

Question “Mark”

By Nevin Adams, EBRI

Adams

Next month we’ll enter the final full month of the 2012 election cycle with a series of presidential (and one vice presidential) debates. Pundits claim these don’t have much impact on the election’s outcome, but millions of Americans will likely tune in anyway, either to help them make a decision, to reinforce the one they made months ago, or perhaps just for the prospect of seeing a historic gaffe. The answers, of course, will receive the most scrutiny, though as any journalist (or pollster) will tell you, the art lies in asking the “right” question.

In the not-too-distant future, EBRI will, in conjunction with Matt Greenwald & Associates, Inc., field the 2013 Retirement Confidence Survey.¹ Over its 23-year history, the RCS has examined the attitudes and behavior of American workers and retirees toward all aspects of saving, retirement planning, and long-term financial security. The survey itself—the longest-running survey of its kind in the nation—is meaningful both for the kinds of issues it deals with and the trends it measures: It’s tracked a “new normal,” where workers adjust their expectations about the transition to retirement; examined both age and gender differences on saving and planning for retirement; tracked attitudes about Social Security and Medicare; and compared expectations about retirement to the realities.²

Not surprisingly, coverage of the survey by the media continues to be quite extensive. The 2012 RCS was released on March 13, 2012,³ and partial tracking (to Sept. 5, 2012) found the 2012 RCS mentioned in 50 newspapers, 26 periodicals, 35 web-based outlets, 22 broadcast outlets (including CNN Money, CNBC.com, and CBS News), as well as eight newswire services.

Significantly, the RCS doesn’t merely deal with confidence as a “feeling,” but also at the criteria that underlie and influence that sentiment. It looks at the perspective both of those already in retirement, as well as those still working and heading toward that milestone, and does so with the perspective of research that has focused on those issues for more than two decades. It also (with a perspective based on more than 20 years of conducting this particular survey) offers insights on how those feelings and factors have changed over time.

From past experience, we know that how individuals view—and anticipate—retirement can have a dramatic impact on that reality. Each year the RCS research team, in collaboration with the survey’s advisory board of underwriters, meets to consider not only past trends and the present environment, but also future developments, as we seek to craft the right set of questions to help explore and expand our collective understanding of these critical issues.

As with many things in life, when it comes to planning for retirement, it’s hard to know what the right answer is if you aren’t asking the right questions.

P.S. The Retirement Confidence Survey is funded through subscriptions. In 2012, there were 26 subscribers (see the full list online here),  which keeps the cost down to $7,500 per subscriber. If you’re interested in supporting and being part of the planning for the 2013 RCS, please email me.

 Notes

¹ The need and demand for reliable data about America’s retirement system, and worker/retiree post-career readiness for retirement has never been greater. If you’d like to know more, or participate as an underwriter of this important survey, please email Nevin Adams. A list of the 2012 RCS Underwriters is available online here. 

² Information from prior editions of the Retirement Confidence Survey is available online here. 

³ Data from the 2012 RCS is available online here. 

“Last” Chances

By Nevin Adams, EBRI

While many Americans seem to lack a definitive sense of what living in retirement will be like, how long it will last, or how much it will cost, their sense of when it will begin has been trending older.  The 2012 Retirement Confidence Survey (RCS) noted that, whereas in 1991, just 11 percent of workers expected to retire after age 65, in 2012, more than three times as many (37 percent) report they expect to wait until after age 65 to retire—and most of those indicated an expected retirement age of 70 or older.1

Those expecting to delay retirement perhaps found solace in a recent report by the Center for Retirement Research (CRR) at Boston College which concluded that by postponing retirement until age 70, the vast majority of households (86 percent) were “…projected to be prepared for retirement.”

That sounds good – but what about the assumptions underlying that conclusion?

In 2003, the Employee Benefit Research Institute (EBRI) constructed the EBRI-ERF Retirement Security Projection Model® (RSPM)—the first nationally representative, micro-simulation model based on actual 401(k) participant behavior and a stochastic decumulation model.  And though we have explicitly recognized that many individuals were retiring at earlier ages, a retirement age of 65 was chosen for baseline results, based upon the assumption that most workers would have the flexibility to work until that age, if they so chose.

Last year we modified the RSPM to determine whether just “working a few more years after age 65” would indeed be a feasible financial solution for those determined to be “at risk.”  Unfortunately, for those counting on that as a retirement savings “solution”, the answer is not always “yes.”

Indeed, results from the EBRI modeling indicated that the lowest pre-retirement income quartile would need to defer retirement to age 84 before 90 percent of the households would have even a break-even (50‒50) chance of success.

Working longer does help, of course.  A recent EBRI Notes article titled “Is Working to Age 70 Really the Answer for Retirement Income Adequacy?2” finds that 23 percent of those who would have been at risk of running out money in retirement if they retired at age 65 would be “ready to retire” if they kept working to 70.  Better still, if those individuals are assumed not only to delay retirement, but also to keep participating in a defined contribution plan, a full third of those who would have been at risk of running short of money if they retired at age 65 would be “ready” to retire at age 70.3

What accounts for the difference in the projections?  For a household to be classified as “ready for retirement” under the CRR method, a projected replacement rate is simply compared with a benchmark rate, while the RSPM uses a fully developed stochastic decumulation process to determine whether a family will run short of money in retirement (and, if so, at what age) under each of a thousand alternative, simulated retirement paths.  Unlike the CRR model, EBRI’s RSPM model simultaneously considers the impact of longevity risk, investment risk, and the risk of potentially catastrophic health care costs (such as prolonged stays in a nursing home).5

Which, as it so happens, are the same things that those trying to make sure they have enough money to last through retirement—and those trying to help them do so—need to consider.

Notes

1 see “Is Working to Age 70 Really the Answer for Retirement Income Adequacy?

2 Also from the above article, “It’s worth nothing that a significant portion of the improvement in readiness takes place in the first four years after age 65, but that tends to level off in the early 70s before picking up in the late 70s and early 80s.  Higher-income households would be in a much better situation: 90 percent of the highest-income quartile would already have a 50 percent probability of success by age 65, while those in the next-highest income quartile would need to wait until age 72 for 90 percent of their group to have a 50 percent probability. Those in the second-lowest income quartile would need to wait until age 81 before 90 percent of their group had a 50 percent probability of success. 

3 At the same time, the percentage of workers expecting to retire before age 65 has decreased from 50 percent in 1991 to 24 percent (see this EBRI analysis, online here).  A sizable proportion of retirees report each year that they retired sooner than they had planned (50 percent in 2012). Those who retire early often do so for negative reasons, such as a health problem or disability (51 percent) or company downsizing or closure (21 percent).  The 2011 RCS found that the poor economy (36 percent), lack of faith in Social Security or the government (16 percent) and a change in employment situation (15 percent) were the most frequently cited reasons for postponing retirement.

4. For more on how this modeling works, see “Single Best Answer.”

5 For an explanation of four things that are sometimes overlooked by retirement-needs projection models, see “Generation ‘Gaps,’” online here.

“Storm” Warnings

By Nevin Adams, EBRI

Adams

Amidst the recent coverage of Hurricane Isaac, I was reminded that it was only a year ago that Hurricane Irene came barreling up the East Coast. We had just deposited my youngest off for his first semester of college, and then spent the drive home up the East Coast with Irene (and the reports of her potential destruction and probable landfalls) close behind. We arrived home, unloaded in record time, and went straight to the local hardware store to stock up for the coming storm.

We weren’t the only ones to do so, of course. And what we had most hoped to acquire (a generator) was not to be found—there, or at that moment, apparently anywhere in the state.

What made that situation all the more infuriating was that, while the prospect of a hurricane landfall was relatively unique, we had, on several prior occasions, been without power, and for extended periods. After each I had told myself that we really needed to invest in a generator—but, as human beings are inclined to do, thinking that I had time to do so when it was more convenient, I simply (and repeatedly) postponed taking action.

Life is full of uncertainty, and events and circumstances, as often as not, happen with little, if any warning. However, hurricanes you can see coming a long way off. There’s always the chance that they will peter out sooner than expected, that landfall will result in a dramatic shift in course and/or intensity, or that, as with Hurricane Katrina, the real impact is what happens afterward. In theory, at least, that provides time to prepare—but, as I was reminded a year ago, sometimes you don’t have time enough.

I suppose a lot of retirement plan participants are going to look back at their working lives that way as they near the threshold of retirement. They’ll likely remember the admonitions about saving sooner, saving more, and the importance of regular, prudent reallocations of investment portfolios. The Retirement Confidence Survey (RCS) has, for years now, chronicled not only the current state of retirement unpreparedness of many, but their awareness of the need to be more attentive to those preparations. Sure, you can find yourself forced suddenly into an unplanned retirement—in fact, retiree respondents to the RCS have long indicated that they stopped working sooner than they had planned.¹ But most of us have plenty of time, both to see that day coming, and to do something about it.

Ultimately, of course, what matters isn’t the time you have, it’s what you do² with it.

Notes

¹ Twenty-five percent of workers in the 2012 Retirement Confidence Survey say the age at which they expect to retire has changed in the past year. In 1991, 11 percent of workers said they expected to retire after age 65, and by 2012 that more than tripled, to 37 percent. Those expectations notwithstanding, half of current retirees surveyed say they left the work force unexpectedly due to health problems, disability, or changes at their employer, such as downsizing or closure (see “The 2012 Retirement Confidence Survey: Job Insecurity, Debt Weigh on Retirement Confidence, Savings,” online here).

² A great place to start those preparations is to figure out what you’ll need, as millions of Americans have with the BallparkE$timate,® developed by the research team at the Employee Benefit Research Institute, and available online here.

Additionally, a wide variety of free tools and innovative resources, including free videos that can be used to share key savings messages with participants, is available here.

The 2012 RCS:Job Insecurity, Debt Weigh on Retirement Confidence, Savings

Americans’ confidence in their ability to afford a comfortable retirement is stagnant at historically low levels in the face of more immediate financial concerns about job uncertainty and debt, according to the 22nd annual Retirement Confidence Survey (RCS), the longest-running annual survey of its kind in the nation.

Asked to name the most pressing financial issue facing Americans today, both workers and retirees were more likely to identify job uncertainty. “Americans’ retirement confidence has plateaued at the lowest levels we’ve seen in two decades of conducting this survey,” said Jack VanDerhei, EBRI research director and co-author of the report.

Many workers report they have virtually no savings and investments, and workers’ expected age of retirement continues to rise, according to the RCS. However, one area in which Americans are saving for retirement is an employer-sponsored retirement savings plan, such as a 401(k). In fact, 81 percent of eligible workers (38 percent of all workers) say they contribute to such a plan with their current employer, according to the RCS.

These and other findings are contained in the 22nd annual RCS, conducted by the nonpartisan Employee Benefit Research Institute (EBRI) and Mathew Greenwald & Associates, Inc. Full results of the 2012 RCS are published in the March 2012 EBRI Issue Brief, released today and online at www.ebri.org 

The EBRI website also has several RCS-related fact sheets, online here. 

The EBRI press release is online here.

2011 Retirement Confidence Survey: Workers’ Pessimism About Retirement Deepens, Reflecting “the New Normal”

In a sign that Americans are recognizing the realities they face about their chances for a comfortable retirement, the 2011 Retirement Confidence Survey (RCS) finds workers are more pessimistic than at any time in the two decades the RCS has been conducted: More than a quarter (27 percent) of workers now say they are “not at all confident” about retirement, up 5 percentage points from the level measured just one year ago.

Reinforcing that trend, the percentage of workers saying they are “very confident” of a comfortable retirement ties with 2009 at 13 percent—the lowest rate ever measured by the RCS, released today (March 15) by EBRI and Mathew Greenwald & Associates.

 The survey also found that roughly a third of both workers and retirees said they had to dip into their savings last year to pay for basic expenses. Significantly, the RCS also found that those with retirement savings—such as a 401(k) or an individual retirement account (IRA)—were far less likely than those without these accounts to tap into their savings

The full report is published in the March 2011 EBRI Issue Brief, online at www.ebri.org:

Selected media coverage of the 2011 RCS: