Even with the pandemic of the last year, articles have noted that much of the population was able to reduce credit card debt or put a little more in savings. Yet with people focused on these immediate needs, would they overlook retirement planning? And how were those already in retirement faring? A recent survey from the Employee Benefit Research Institute (the Retirement Confidence Survey) provides guidance for some of these questions.
Current retirees
Most people (8 in 10) who have already retired believe they will continue to have enough money for a comfortable retirement while almost a third are very confident that they will be fine. This compares to 76% of retirees who were confident they would have enough money in last year’s survey (before COVID). Seventy percent say the pandemic hasn’t changed their level of confidence. One reason noted for the consistent level of confidence is the fact that the pandemic may have forced a lower level of spending since many retirees were unable to travel.
Current employees
Workers express the same level of confidence in their ability to save enough for retirement. 70% of current employees believe they will have enough for a comfortable retirement, and half of them say the pandemic hasn’t altered their beliefs. While 3 in 10 assert that job loses or reduced income from the pandemic impacted their ability to save for retirement, only 1 in 20 workers feel significantly less confident according to this year’s survey.
When asked about their current employee retirement plan, 80% were pleased with the benefit. Eighty percent were also satisfied with their investment options available in the plan. Even with the challenges of 2020, only 3 in 10 made changes to their contribution rate since January 2020, and more than half of these increased their contribution. And only about 10% report that they took a loan or hardship withdrawal in the past year.
People who lost their jobs
Not surprisingly, while the overall percentages showed continued confidence in a secure retirement, people who lost their jobs had a different take. Forty percent of workers lost their job or experienced reduced income, and half of these felt less confident about their ability to save enough for a comfortable retirement.
Other goals getting in the way
Most people agree that saving for retirement is a priority, yet many are still sidelined by debt. Forty percent say that saving for or paying off their child’s college education reduces contributions to their retirement. Another 4 in 10 say that non-mortgage debt similarly negatively impacts their ability to save for retirement.
Somewhat more concerning is the effect that debt is having on current retirees. Almost a quarter of retirees agree that debt is impacting their ability to live comfortably in retirement.
Less dependence on pensions
As pensions have been replaced by defined contribution plans (401k, 403b, etc.), it’s no surprise that today’s workers cite their defined contribution (DC) plan as the base for their retirement income more than respondents have in the past. When asked the top five sources of income this year, pensions weren’t included. Respondents listed Social Security, their DC plan, personal savings, IRA plans, and continuing to work. Yet current retirees list pensions third on their top five sources of income, and don’t list working for pay.
Who to talk to?
When workers need advice, they’re talking to family/friends or relying on the Internet to answer their questions (35% for each); only 27% are talking to a personal financial planner. While this may not be as important in the accumulation phase, understanding Social Security, Medicare, and various withdrawal scenarios can make a financial planner valuable as one transitions from worker to retiree.
I’ll retire at 65? Maybe not…
When asked, current employees expect to retire at 65. However, current retirees actually averaged age 62 when they retired. The pandemic has forced a rethinking among employees, as 25% have adjusted the age at which they hope to retire: 17% plan to retire later, while 6% will retire earlier.
Also, if you’re thinking of easing into retirement, you might want to have a plan B in place. Half of today’s workers see a gradual intro into retirement – perhaps by keeping a reduced role in their company or finding a consulting role. Yet only 19% of current retirees said they had a gradual transition, while 73% immediately went from work to full-time retirement. And as noted above, while 72% of workers think they will work for pay in retirement, only 3 in 10 of current retirees actually do.
Takeaways
While people are confident both in retirement and planning for retirement, the disconnect between when workers retire and their ability to work during retirement remains concerning. With people living longer, being forced out of the job market at 62 due to injury or age discrimination may dampen a worker’s ability to maintain a comfortable retirement.
Debt is also a prevailing concern whether preparing for retirement or living the good life. Remember – the survey asked about non-mortgage debt, so the results are mainly based on car loans, credit cards, and personal loans. The enjoyment of buying now and paying later doesn’t seem to wane in retirement.
Finally, there’s a dearth of advice about going from earning a paycheck to creating your own paycheck from your savings. People are relying on friends and the internet at a time they should either be receiving information through a financial professional or through their employer. The complexity of these decisions and the fact that they may have to be made in a limited time doesn’t set up many for success. Perhaps the next advancement in retirement planning will encompass how to alter your investments as you near retirement and specific strategies to keep from running out of money in retirement.
Photo by Mentatdgt