Americans Lose Confidence in Ability to Retire

Only 13 percent of Americans are very confident they will have enough money to live comfortably in retirement

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Optimism about a retirement filled with golf and gardening is being replaced by a vision of retirement that includes work for pay and a considerable amount of cutting back. Only 13 percent of Americans say they are very confident they will have enough money to live comfortably in retirement, according to a new survey. That’s a record low since the Employee Benefit Research Institute began asking the question in 1993 and continues a downward trend from 27 percent in 2007 and 18 percent in 2008. Retiree confidence in having a financially secure future has also dropped to a new low, with only 20 percent now saying they are very confident, down from 41 percent in 2007 and 29 percent in 2008.

Economic uncertainty, inflation, and the cost of living are the primary factors contributing to this decrease in retirement confidence, according to the EBRI telephone survey of 1,257 Americans age 25 and older conducted in January 2009. In addition, negative experiences such as a layoff, pay cut, loss of retirement savings, or an increase in debt almost always negatively impact the retirement security of those who experience them. But most Americans were not on track for a secure retirement even before the recession began. “There was so much unwarranted optimism going into this that people have a much more realistic outlook now,” says Jack VanDerhei, research director for EBRI. “You may never have been on target even before you had the kind of losses many people incurred last year in the stock market.”

More work. Because of the economic downturn, many employees say they expect to delay retirement or work after they have officially retired. Some 28 percent of workers say the age at which they expect to retire has changed in the past year, typically because they have postponed retirement with the intention of increasing their financial security. The median worker expects to retire at age 65, with 21 percent planning to continue on into their 70s. The typical current retiree actually retired at age 62. And 47 percent of retirees say they retired sooner than they originally planned to. “If you are already 55 or older and $50,000 is all you have saved for retirement, I think the only option you have at that point is to try to push back your retirement age,” says VanDerhei. “Never retire until you are sure you have enough money because it is going to be very difficult to enter the workforce later on.” But most workers seem to think they will be able to find work during the traditional retirement years. About 72 percent of Americans expect to work after they officially retire, up from 63 percent in 2008. Only 34 percent of current retirees report they actually worked for pay at some time during their retirement.

Becoming realistic. Most workers (81 percent) who have lost confidence in their ability to retire are cutting expenses. Some are also changing the way they invest their money (43 percent), working more hours or a second job (38 percent), saving more money (25 percent), and seeking advice from a financial professional (25 percent). Yet, only 44 percent of workers report they have tried to calculate how much money they will need to save to live comfortably in retirement. An equal proportion (44 percent of workers) simply guessed how much they will need to accumulate. “For the average worker who makes $40,000 a year over the course of working, you’ve got to save between 13 and 15 percent of your pay,” says Dan Houston, president of retirement and investor services at Principal Financial Group Inc., an underwriter of the survey. “The average deferral is about 7 percent. We’re saving about half as much as we should be.”

But, should you figure out the exact amount you need to save, be prepared for the cold shock of realism. Among workers who did a retirement savings needs calculation, the percentage reporting they are very confident about their ability to retire decreased from 29 percent in 2008 to 19 percent in 2009. For employees not doing the calculation, the percentage very confident remained steady at 9 percent in 2009, compared to 8 percent in 2008.