Retirement confidence edges up from record lows

After five years of record lows, Americans’ belief in their ability to retire comfortably appears to be on the upswing, according the annual Retirement Confidence Survey released Tuesday by the Employee Benefit Research Institute.

A minority of American workers — 18% — said they are very confident about their retirement prospects. That is an increase of 5 percentage points from the low of 13% measured in 2009, 2011 and 2013. But it is still well below the historic high of 27% who said they were very confident of their retirement prospects back in 2007 just before the stock market crash and onset of the Great Recession.

Another 37% of workers in the 2014 survey said they are somewhat confident that they’ll be able to live comfortably throughout their retirement.

Altogether, this year’s survey of 1,500 Americans found that a majority of American workers – 55% – are confident about their ability to retire. The increased confidence is observed almost exclusively among those with higher household income — $75,000 or above — and with access to retirement savings plans.

“Retirement confidence is strongly related to retirement plan participation,” EBRI research director Jack VanDerhei said in a statement accompanying the release of its Retirement Confidence Survey, the longest-running survey of its kind.

“In fact, workers reporting that they or their spouse have money in a defined-contribution plan or [individual retirement account], 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,” he said.

Mr. VanDerhei suggested that the increase in retirement confidence among those with access to a retirement savings plan is tied to rising stock market and property values.

Among retirees, confidence in having a financially secure retirement, which historically tends to exceed worker confidence levels, also has increased in 2014. More than a quarter of retirees — 28% — report that they are now very confident in their ability to live comfortably throughout retirement, up from 18% in 2013.

Perhaps not coincidently, retirees are more likely than workers to seek and follow advice from a professional financial adviser.

Roughly one in five workers and 25% of retirees report that they pay for financial advice, either through fees or commissions.

But only 27% of workers who obtain advice said they followed all of it; 36% said they follow most of the advice, and 29% said they follow some of it. Retirees, on the other hand, appear to be more receptive to financial advice, with 38% reporting that they follow all of the advice of a professional financial adviser.

The reasons most often offered for not following all of the advice include not trusting the advice; having other ideas, or other plans or goals; not being able to afford it; changing circumstances rendering the advice no longer applicable; and getting better advice from another source.

Meanwhile, nearly one-quarter of workers said that they are not at all confident in their ability to afford retirement; consequently, many said they plan to continue working as long as they can.

More than half of the surveyed workers cited the cost of living and day-to-day expenses as the main reasons they did not save — or save more — for retirement. Existing debt is clearly an obstacle for many who find it impossible to save for retirement.

“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,” said Mathew Greenwald, head of Greenwald & Associates, which conducted the survey.

Most workers still haven’t 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 save for retirement, a level that has held relatively consistent over the past decade. Workers who have done a retirement savings needs calculation tend to have higher levels of savings.

Many of those workers who are unprepared for retirement said they will manage by working longer. But plans for continued employment may not be realistic, as older individuals may confront health problems or layoffs. Nearly two-thirds of survey respondents said they plan to work for pay in retirement, compared with 27 % of retirees who said they still work.

The 24th annual EBRI Retirement Confident Survey mirrors the results of other recent investor surveys.

The Capital One ShareBuilder’s Financial Freedom Survey, released Monday, found that Americans know they should be saving more for retirement, but nearly a quarter of working adults aren’t saving anything at all.

On average, employed Americans believe that they should be saving about 12.1% of their income for retirement — nearly double the estimated 6.4% of their income that is currently being saved, according to the telephone survey of 1,000 adults 18 and older.

The majority — 58% — of nonretired Americans in the Capital One survey said they are planning to retire by 65, but more than half are concerned that they will never be able to save enough to accomplish that goal.

Meanwhile, the Wells Fargo/Gallup Investor & Retirement Optimism Index jumped 12 points in the first quarter of 2014, due largely to a surge in optimism among retired investors. Retirees said they are more upbeat about their ability to maintain or increase their current income level of the next year, and they are also more optimistic about the stock market.

“It is both interesting and encouraging to see that retirees are more optimistic,” said Joe Ready, director of Wells Fargo Institutional Retirement and Trust.

“This is a real shift and most likely correlates to the combination of a stronger stock market and the prospect of higher interest rates in the future,” Mr. Ready said.

Related Topics: Retirement, Surveys