The following chilling article appeared a couple of days ago in Financial Advisor magazine online earlier today. This is nothing short of a financial crisis in the making.
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Most Workers Have Less Than $25,000 For Retirement, Says Survey
March 20, 2013 • Kathy Lynch
Thirty-six percent of workers aged 55 and older surveyed by the Employee Benefit Research Institute (EBRI) report having less than $10,000 in savings and investments.
Excluding the value of their homes and any defined benefit pension plans, 57 percent of all respondents that participated in EBRI’s Retirement Confidence Survey report less than $25,000 in total household savings and investments, and almost half of those (28%) have less than $1,000 saved.
In addition, the percentage of workers currently saving for retirement has continued to decline to 57 percent from 65 percent recorded in 2009.
As a result, worker’s confidence in their ability to live comfortably throughout retirement remains low, with 28 percent of workers reporting they are not at all confident. This is an increase of 5 percent from last year and the highest level recorded in the 23 years the EBRI has been conducting the survey.
“The recent low levels of retirement confidence may be, at least partly, the result of the increasing awareness of the challenges many Americans face in trying to achieve a financially secure retirement,” says Jack VanDerhei, EBRI research director, and co-author of the report.
Immediate financial issues take precedence over saving for retirement. Day-to-day living expenses and too much debt hinder workers ability to save for the future.
Workers cite an inability to determine just how much money they will need for retirement. Almost half of workers age 45 and older have not tried to calculate how much money they will need to have saved for a comfortable retirement, according to EBRI. Those that did complete a retirement-savings-needs-calculation had more confidence about their ability to put money aside and had higher savings goals than those who had not done the calculation.
“Even with this low level of savings, in the past 12 months, one in three workers withdrew money from their savings to pay for current expenses,” says Mathew Greenwald, president Greenwald & Associates.
To compensate for their lack of retirement funds, workers plan on delaying retirement. Thirty-six percent expect to wait until after age 65 to retire. This is a significant increase from the 11 percent of workers who expected to retire after age 65 when the survey was first conducted in 1991. Additionally, 69 percent of respondents said they plan to find paid employment once retired from their primary job.
However, there is substantial risk in this strategy since many current retirees were forced into retirement earlier than they expected due conditions that were out of their control, such as health problems or a company downsizing. So working longer may not be an option for many respondents, according to Greenwald.
Employer-sponsored retirement savings plans are the primary way workers save, with 82 percent of employees contributing to a plan, if it is offered.
If those respondents not currently offered a retirement savings plan were automatically enrolled into one, most would continue the contribution, according to the survey. Forty-two percent report they would continue the contribution as is, and 35 percent would increase it.
Workers who participate in an employee-sponsored plan are considerably more likely than those who don’t to have saved at least $50,000, according to the survey.
“Knowing how much to save for retirement is a complex calculation, and the Retirement Confidence Survey shows the difficulty workers have in deciding how much to save and the risks they are subjecting themselves to if they don’t. More effective actions by employers can help a great deal in getting workers to save and encouraging them to save more,” says Greenwald.
The survey was conducted in January 2013 with 1,254 individuals age 25 and older in the United States, The RCS is co-sponsored by the Employee Benefit Research Institute (EBRI), a private, nonprofit, nonpartisan public policy research organization, and Mathew Greenwald & Associates, Inc., a Washington, DC-based market research firm.
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Have a great weekend everyone!
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