Moving the Needle on Retirement Confidence

The 25th Retirement Confidence Survey (RCS) from the Employee Benefit Research Institute (EBRI) finds Americans’ confidence in their ability to afford a comfortable retirement has continued to rebound from the record lows experienced between 2009 and 2013, but this increased level of confidence does not appear to be grounded on objectively improved retirement preparations.

According to the report, “The 2015 Retirement Confidence Survey: Having a Retirement Savings Plan a Key Factor in Americans’ Retirement Confidence,” 22% are now very confident (up from 13% in 2013 and 18% in 2014), while 36% are somewhat confident. Twenty-four percent are not at all confident (statistically unchanged from 28% in 2013 and 24% in 2014).

The increased confidence since 2013 is strongly related to retirement plan participation, the report says. Among those with a plan, the percentage very confident increased from 14% in 2013 to 28% in 2015. In contrast, the percentage very confident remained statistically unchanged among those without a plan (10% in 2013, 9% in 2014, and 12% in 2015).

Retiree confidence in having a financially secure retirement, which historically tends to exceed worker confidence levels, has also increased, with 37% very confident (up from 18% in 2013 and 28% in 2014). The percentage not at all confident was 14% (statistically unchanged from 14% in 2013 and 17% in 2014).

Worker confidence in the affordability of various aspects of retirement also rebounded. In particular, the percentage of workers who are very confident in their ability to pay for basic expenses increased (37%, up from 25% in 2013 and 29% in 2014). The percentages of workers who are very confident in their ability to pay for medical expenses (18%, up from 12% in 2011) and long-term care expenses (14%, up from 9% in 2011) are slowly inching upward.

Sixty-seven percent of workers report they or their spouses have saved for retirement (statistically equivalent to 64% in 2014), although nearly eight in 10 (78%) full-time workers say that they or their spouses have done so. Still, a sizable percentage of workers report they have virtually no savings and investments. Among RCS workers providing this type of information, 28% say they have less than $1,000, though those who indicate they and their spouse do not have a retirement plan, such as an individual retirement account (IRA), defined contribution (DC) or defined benefit (DB) plan, are far more likely than those who have a plan to report this low level of savings (64% vs. 9%) and far less likely to report having saved at least $100,000 (3% vs. 35%).

Cost of living and day-to-day expenses head the list of reasons why workers do not save (or save more) for retirement, with 50% of workers citing these factors. Nevertheless, many workers say they could save a small amount more. Seven in 10 (69%) state they could save $25 a week more than they are currently saving for retirement.

Continuing the Upward Trend

Luke Vandermillen, vice president of retirement and investor services at The Principal, a co-sponsor of the survey, says this is an indicator that people know they could do a better job managing day-to-day expenses and know they should be saving more for retirement, and now it is up to plan sponsors and advisers to capitalize on that and help people make those decisions.

“There are a number of things plan sponsors can do to make saving easier for workers,” Vandermillen, based in Des Moines, Iowa, tells PLANSPONSOR. “The first is thoughtful plan design, making participation as stress-free and easy as possible.” He explains that this includes automatic enrollment, automatic deferral escalation at 1% per year, and setting an asset allocation product as the default investment.

Vandermillen warns that plan sponsors should not set the default deferral rate too low. “One, two or three percent is too low. We find, and the research backs up, that if you default at 6% to 8% and auto-increase 1% each year, most participants do not opt out,” he says.

For the 2015 RCS, workers participating in a DC plan were asked what they would do if they changed jobs and their new employer automatically enrolled them into the workplace retirement plan, deferring 3% or 6% of their salary into the plan. At a 3% deferral rate, half of participants report they would raise their contribution. Another 39% would let the 3% deferral stand. Just 4% each would reduce the contribution or stop the contribution altogether. At a 6% deferral rate, three in 10 would raise the contribution and 44% would continue the contribution at 6%. Two in 10 would reduce the contribution, and 3% would stop it altogether.

If their employer were to implement auto-escalation, increasing the percentage of salary contributed to the plan by 1% each year, many plan participants indicate they would be likely to let their contribution continue to escalate to 10% or more. While 4% would stop the auto-escalation before it reached 5%, one-quarter (24%) would let it continue to between 5% and 9%. Others would allow their contribution to reach 10% to 14% (24%), 15% to 19% (11%), or 20% or more (11%).

Another way plan sponsors and advisers can help retirement plan participants maximize their savings is to show them what they will need, according to Vandermillen. The 2015 RCS found less than half (48%) of workers report 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. Vandermillen says The Principal’s Retirement Wellness Calculator is one example of a tool that can help people know if they are on the right track by showing them, on a scale from 1 to 100, their level of readiness.

According to the RCS report, while investment education and advice from an online provider could be a valuable and affordable tool for many, just 4% of workers report being very interested in obtaining investment education and advice online, and 22% say they are somewhat interested. The majority of workers are not too (26%) or not at all (48%) interested.

Vandermillen notes the survey does not get into the reasons for little interest in online education and advice, but he wonders if it is because plan sponsors and advisers may not be focusing on the right types of education and advice. Online resources are most effective when they meet people where they are in the retirement readiness spectrum, not necessarily using complex calculators, but simplifying the message, he says, and he suggests reinforcing the message with education meetings, mailers, and on company or provider websites. Vandermillen adds that online education and advice should be made readily available to participants and should be usable on mobile devices.

“The finding that retirement confidence has moved up is encouraging, but there’s more work to be done,” Vandermillen says.

The 2015 RCS report is available at www.ebri.org.