Thursday, April 17, 2014

A Snapshot of Retirement Confidence in America

A recent brief by the Employee Benefit Research Institute looks at the level of confidence that Americans have about funding their retirement.  It provides us with an interesting look at how retirement confidence varies across the household income spectrum.

Americans' confidence in their ability to retire to a life of comfort and financial security was shattered during the Great Recession, hitting low levels not seen going back to the early 1990s.  This can be attributed to the drop in the value of equities and the general uncertainty in the economy as a whole.  I also suspect that the current and sustained lower level of confidence is likely related to Mr. Bernanke's long experiment with near-zero interest rates that has impacted returns on retiree and retirement savings.  

Here are a few key points from the brief:

1.) A significant portion of workers report that they have no retirement savings or investments; 36 percent state that they have less than $1000 saved for retirement, up from 28 percent the year before.  In homes where the household income is less than $35,000 annually, a whopping 68 percent have savings of less than $1000.  A total of 60 percent of workers report that the total value of their household savings and investments, excluding the value of their defined benefit pension plans and primary home, is less than $25,000.  With pensions being a fraction of current salaries, many America retirees will be living a very frugal lifestyle if they are forced to live within their pensions.  On the upside for the minority of Americans, 11 percent of workers have total savings and investments of $250,000 or more.

2.) Only 18 percent of workers believe that they are confident that they will have enough money for a comfortable retirement.  While this is up from 13 percent in the previous year, it is down from levels between 1993 and 2007 as shown in dark blue on this graph:

3.) Even those that are currently retired have little confidence that they will have enough money to live comfortably through their remaining retirement years with only 28 percent being very confident that they will have sufficient retirement funding (in dark blue) compared to a total of 31 percent that are either not too confident or not at all confident as shown on this graph:

Again, notice that the percentage of retirees that are very confident in their retirement funding was between 35 percent and 41 percent between 2000 and 2007 but dropped off rapidly in 2008 to only 20 percent.  

4.) It is also interesting to note that retirement confidence among workers varies greatly with debt levels.  Not surprisingly, workers with high levels of debt problems tend to be far less confident than their less indebted peers; nearly half (49 percent) of workers with major debt problems are not at all confident that they will have enough money to live compared to only 3 percent of the heavily indebted who are deluded enough to think that they will have a comfortable retirement life as shown on this graph:

5.) Overall, retirement confidence is strongly related to participation in an IRA, defined benefit or defined contribution plan.  Workers who have a retirement plan are nearly three times as likely to be very confident that they will have enough funding for their retirement (24 percent) versus those unfortunates without the above retirement cushion (9 percent).  Nearly half of workers without a retirement plan were not confident  about their retirement financial security.

6.) Again, it is not terribly surprising, but household income level has a great impact on whether or not a household is confident that they will have a financially secure retirement.  Households with total income of $75,000 were the most confident.

7.) Having just admitted a family member to Long-Term Care, I found the following information quite shocking:

With all baby boomers eventually heading to Long-Term Care, it is interesting to see that 56 percent of workers surveyed are not too confident or not at all confident that they will be able to fund a stay in long-term care.  A measly 13 percent are very confident that they will be able to fund their stay in a long-term care facility.

To sum all of this data up, over the decades since 1991, workers have changed their minds about when they expect to retire, in part due to the economic realities of today.  In 1991, 34 percent of workers expected to retire at age 65.  This has dropped to 23 percent in 2014.  In 1991, only 9 percent of workers expected to work until they were 70 years of age or older.  This has more than doubled to 22 percent in 2014, hitting a high of 26 percent in 2013.  It is obvious that the changing economy of the United States has had a significant impact on the ability of Americans to retire and that those who do retire find themselves working in retirement to help make ends meet.  With 68 percent of workers feeling that entitlement programs will not offer the same level of benefits in the future as they do today, the trend of the working retiree is unlikely to change.


  1. I'm shocked that you were shocked that so few people are confident they can cope with costs for long-term care. Here is a recent article on MW discussing Genworth estimates of some relevant costs:
    In my state, Hawaii, they estimate over $130k/year for a private nursing home room.
    That's a lot. And of course it's going up.