Retirement confidence rebounds, but overall savings remain low, EBRI survey finds

Americans’ confidence in their ability to afford a comfortable retirement has recovered somewhat from the record lows of the past five years, but appears to be limited to those with retirement plans, according to the 24th annual Retirement Confidence Survey (RCS) conducted by the Employee Benefit Research Institute (EBRI) and Greenwald & Associates, Inc.

The survey found that 18% of employees are “very confident” about having enough money for a comfortable retirement, up from 13% in 2013, while 37% were “somewhat confident.” Nearly a quarter (24%) were not at all confident, statistically unchanged from 28% in 2013.

However, the EBRI noted, in the aggregate, reported worker savings remained low, and only a minority appear to be taking basic steps to prepare for retirement. This increased confidence is observed almost exclusively among those with higher household income, but confidence was also found to be strongly correlated with household participation in a retirement plan (including an individual retirement account (IRA)). Nearly half of workers without a retirement plan were not at all confident about their financial security in retirement, compared with only about 1 in 10 with a plan.

Confidence correlated with plan participation

“Retirement confidence is strongly related to retirement plan participation,” noted Jack VanDerhei, EBRI research director, and co-author of the report. “In fact, workers reporting they or their spouse have money in a defined contribution plan or IRA or have a defined benefit plan from a current or previous employer are more than twice as likely as those without any of these plans to be very confident (24% with a plan vs. 9% without a plan).”

The increase in confidence between 2013 and 2014 occurred primarily among those with a plan (an increase from 14% very confident in 2013 to 24% in 2014 for those with a plan) compared with level readings among those without a plan (10% very confident in 2013 and 9% in 2014). VanDerhei explained that a possible reason for improved confidence is the rising stock market and property values.

Retiree confidence in having a financially secure retirement, which historically tends to exceed worker confidence levels, also increased, with 28% very confident (up from 18% in 2013) and 17% not at all confident (statistically unchanged from 14% in 2013).

Nearly two-thirds (64%) of employees reported that they or their spouse have saved for retirement (statistically equivalent to 66% in 2013), although nearly 8 in 10 (79%) of full-time workers say that they or their spouse have done so. Here again, the report noted, participation in a retirement plan mattered: 90% of workers participating in a retirement plan had saved for retirement, compared with just 1 in 5 of those without a retirement plan.

Obstacles to savings

Cost of living and day-to-day expenses headed the list of reasons why workers do not save (or save more) for retirement, with 53% of employees citing these factors. Existing debt is clearly an obstacle standing in the way of many needing to save for retirement, and weighing on retirement confidence, according to Matt Greenwald, of Greenwald & Associates, which conducted and co-sponsored the survey.

“Just 3% of workers who describe their debt as a major problem say they are very confident about having enough money to live comfortably throughout retirement, compared with 29% of workers who indicate debt is not a problem,” he noted. Greenwald added that 58% of workers and 44% of retirees say they are having a “problem with their level of debt.”

Employees appeared to be aware of the need to bolster savings: 22% said that they need to save between 20% and 29% of their income and another 22% indicated they need to save 30% or more. However, those without a retirement plan (either an IRA, defined contribution, or defined benefit) on a household level were more likely than those with a plan to think they need to save at least 50% of their income (23% vs. 8%) and to say they did not know how much they need to save.

The survey found that most employees have not tried to estimate their retirement savings needs. Only 44% reported that they and/or their spouse have tried to calculate how much money they will need to have saved by the time they retire so that they can live comfortably in retirement, a level that has held relatively consistent over the past decade. Workers who have done a retirement savings needs calculation (compared with those who have not) tend to have higher levels of savings, the EBRI noted.

However, the EBRI report found that employees remain committed to savings, despite any possible tax changes that may occur in the future. When asked how they would respond if they could no longer contribute to employer-sponsored retirement savings plans on a pretax basis, but if instead contributions and subsequent earnings on those contributions were not subjected to additional taxes at withdrawal—basically transforming the current 401(k) structure to a Roth 401(k) approach—two-thirds (65%) of plan participants said they would continue to contribute at their current rate(s).

Source: EBRI press release PR 1066, March 18, 2014.