Retirement? What's That?
03/11/2010 2:00 pm EST
There’s some news from the front lines of retirement in America, and it’s not good.
The latest annual survey by the Employee Benefit Research Institute (EBRI), which represents businesses, pension funds, unions, and others, shows that despite a giant stock market rally since last March, American workers’ confidence that they will have a secure retirement remains near 2009’s rock-bottom levels.
A mere 16 percent of workers surveyed by EBRI said they were very confident they would have enough money for a comfortable retirement—up slightly from 2009’s Armageddon-like 13%—while 19% of retirees said the same thing, roughly even with last year’s numbers.
But although their confidence has “stabilized,” as EBRI puts it, their actual situation has deteriorated.
Some 69% say they and/or their spouses have actually saved for retirement, down from 75% last year, and only 60% are currently saving for retirement—a decline from 2009’s 65%.
It’s not surprising. The housing bust, bear market, and Great Recession have knocked the stuffing out of households’ finances. With nearly 17% of the population either officially unemployed or working less than they want to, millions are barely making ends meet. That means paying the mortgage and putting food on the table come first, and saving for retirement is a distant second.
But retirement will come, good economy or bad, and even many Americans who can prepare for it just aren’t doing enough.
Published this week, the 2010 Retirement Confidence Survey, EBRI’s 20th annual version of this poll, finds that a majority—54%—have less than $25,000 in total savings and investments (not including their primary residence), and 27% have less than $1,000.
But even worse, too many people, says EBRI’s research director Jack VanDerhei, are “basically clueless about what they need” to retire.
The EBRI report finds that less than half of American workers—46%—have actually tried to calculate how much they’ll need to retire comfortably.
Once they find that out, says VanDerhei, more are likely to do something about it. But it’s a big step to take.
Too many Americans would rather engage in fantasy—“I can live off Social Security” or “I’ll just work a little longer”—than face the facts and maybe have to make some tough choices about saving and spending. Sound familiar, Congress?
But that kind of wishful thinking can be dangerous to people’s financial health.
For instance, one-third of all workers polled by EBRI said they expected to retire after 65.
That’s all well and good, but unless you own your own business, you may not have a choice.
Some 40% of retirees say they retired earlier than they wanted to, either because of layoffs or illness.
“It’s risky to assume you’re going to be able to keep working,” says VanDerhei.
That’s why saving and investing are crucial while you still can do it, but human nature—which sees the short run as real and the long run as distant and abstract—can trump people’s rational self-interest.
“People just don’t plan for retirement,” says Alicia H. Munnell, director of the Center for Retirement Research at Boston College.
And when they do, she says, they wait until their fifties, when time is not on their side and it takes many more dollars of saving to reach their goals.
Obviously, income is a big factor. Only 26% of households earning less than $35,000 a year are saving for retirement, while 88% of those earning more than $75,000 annually are putting money away, according to EBRI.
So, it’s no surprise that Boston College found late last year that 60% of lower-income households were “at risk” of not being able to maintain their standard of living in retirement (defined as anywhere from 60% to 75% of preretirement income).
A surprisingly high 47% of middle-income people and 42% of high-income people were in the same boat, and both numbers were sharply higher than in 2007.
Another key factor: for whom you work.
Setting aside government employees—who in too many cases enjoy rich pension benefits the rest of us can only dream about—chances are you’ll save more for retirement if you’re a full-time employee of a large company that offers a defined contribution plan like a 401(k).
More than half of all employees in companies that have 1,000 or more workers participated in an employment-based retirement plan, according to EBRI, but only 21% of those who worked for a firm with 10-24 employees did. And of course, “the vast majority of employers are small,” says VanDerhei.
And some age groups are in better shape than others, particularly—surprise, surprise—the early baby boomers, those born between 1951 and 1954. Their “at risk” rate—41%—is far below that of late boomers (born 1955-1964) and especially GenXers (born 1965-1977). Among the latter group, 56% of households were “at risk” of not being able to maintain their standard of living in retirement.
Why did the early boomers do so well? “Because they got to ride up the entire stock market boom from 1982 to 2000,” says Munnell, and even subsequent losses haven’t erased all the gains.
Unfortunately, late boomers and GenXers can’t count on the stock market to make up for their lack of savings. Nor can they expect rising home values to lift them to financial Nirvana. And with all the problems of Social Security and Medicare, don’t even think the government will step in and bail out cash-strapped retirees.
But they can look the situation right in the eye and at least figure out how much they’ll need—and then start saving like crazy.
“People lead busy, complicated lives, and their parents didn’t have to plan for retirement,” says Munnell. “But we’re in this new world.”
So, if you haven’t made a retirement plan yet or are putting away less than you think you should be, it’s time to get cracking.
Howard R. Gold is executive editor of MoneyShow.com. The views expressed here are his own.