Secure retirement still elusive for many employees
Industry experts are stressing the importance of saving for retirement, as well as the vital role employers play.
“Retirement is not about reaching a magic number,” says Cathy Weatherford, president and CEO of the Insured Retirement Institute. “It is about achieving a dignified retirement through savings and Social Security to achieve a good, secure retirement.”
Secure retirement, however, still seems elusive to many employees, as evidenced by a slew of recent research.
In its latest data, “Boomers Expectations for Retirement 2017,” the IRI looked at retirement confidence and preparedness among baby boomers. It found is that only six in 10 boomers believe their retirement income will be sufficient to cover basic expenses in retirement and will afford them some “fun money” for vacations or leisure activities. Sixty percent of boomers said that Social Security will be a major source of income for them in retirement, the highest percentage recorded in the seven years IRI has produced the report.
The report found that only 23% of boomers believe they have enough money saved to last throughout their retirement, and only 54% of boomers say they have retirement savings, the lowest recorded in the seven years IRI has produced the report. And of this 54%, about 60% say they have saved at least $100,000.
“While this may seem like a sizable savings amount, given average expenses and income from Social Security, a couple could face an annual shortfall between $3,864 and $12,072, depending on how much they have saved,” Weatherford says.
Only four in 10 boomers have attempted to calculate how much they will need to save for retirement.
Additionally, 25% of baby boomers are still employed full-time, according to the IRI, down from 50% in 2011. Nearly four in 10 boomers stated they are fully retired in 2017, double the amount reporting the same in 2011.
Other statistics point to dire findings about retirement readiness: According to the National Foundation for Credit Counseling, 27% of U.S. adults don’t save any part of their income for retirement.
When the organization looked at where adults were saving their money, two in three said they use a savings account. Slightly less than one-third use a 401(k) plan and 12% said they save money at home, either in a safe or under their mattress, says Bruce McClary, a spokesman for NFCC.
“Significantly fewer save through investments or mutual funds, 26% vs. 32% in 2016. Those who use IRAs dropped 3% from 29% to 26%,” he adds.
The NFCC found that older adults are more likely to invest in a 401(k) plan and younger adults are more likely to save money at home. A whopping 75% of those surveyed say they have financial worries.
Another worrying statistic, experts say, that impacts how much people are saving for retirement is how Americans are managing their credit card debt.
“Credit card debt levels have returned to just about where they were pre-Recession,” McClary says, noting that high interest credit card debt is a main contributor to long-term financial worries. Thirty-nine percent of survey respondents said they carry credit card debt vs. 35% in 2016.
“Despite the fact that most adults are saving at least some for retirement — and many feel confident that they’re saving enough — when asked what areas of personal finance are most worrisome, the top responses were retiring without having enough money set aside, up significantly more than the previous two years (18% vs. 15% in both 2016 and 2015), and insufficient ‘rainy day’ savings for an emergency (16%, similar to 14% in 2016),” the report stated.
Women facing unique challenges
Meanwhile, women continue to face the most challenges in retirement. As one example, Diane Garnick, chief income strategist at TIAA, says that since the Pension Protection Act was passed in 2006, more people are using target-date funds. But TDFs are “designed for the average participant. Plan sponsors could make a tremendous difference if they customized their target-date funds for their specific workforce,” she says. “We find for every 10% a man saves for retirement a woman needs to save 18% just to have the same level of wealth at retirement.”
Women are behind because they still suffer from the gender pay gap, Garnick notes, which is 78 cents on the dollar. Additionally, she says, women are more risk averse than men so they don’t get as much return on the assets they do save.
But working with a financial adviser can help participants better plan for retirement.
“There’s no substitute for live advice,” says Jim Mullery, head of sales and distribution at Prudential Annuities.
In its latest research, Prudential found that nearly three-quarters of pre-retirees agree they should do more to prepare for retirement, but 40% said they just don’t know what to do. Only 41% consider themselves to be experienced investors and 47% say they are knowledgeable about investment products. Six in 10 people surveyed say they are overwhelmed by the number of financial products that exist in the market today, Mullery says.
People can make gains in their retirement preparations by starting early, saving more and consulting a financial professional, he adds.
In the past, the rule of thumb was that a person could safely withdraw 4% of their retirement savings every year in retirement, but “economic pundits are saying it is below 3% right now,” says John Kennedy, head of distribution for Lincoln Financial Distributors.
“Savers face longer lifespans, less access to a pension, and safety nets like Social Security can’t be relied on as a sole source of retirement income. They need a plan that can last 30-plus years,” Kennedy says. “The need for guaranteed lifetime income has truly never been greater.”
The other big thing people aren’t planning for in retirement is healthcare and long-term care expenses, says Tim O’Mara, vice president of the Nationwide Retirement Institute. Very few people have healthcare coverage from their employers in retirement, that’s why it is very important for plan participants to speak with an adviser about how much they will likely spend a year on healthcare expenses.
Most people’s biggest and longest expense in retirement is Medicare. And most people don’t realize that Medicare doesn’t cover any long-term care expenses.
O’Mara agrees that it is very important that those nearing retirement to seek out the expertise of an adviser who can use the many tools at their disposal to help individuals get a better handle on their retirement expenses so they can prepare for and live well in retirement.