Data and Research April 22, 2021

Americans Remain Confident About Retirement, Even in the Face of the Pandemic

Plus, their confidence in Medicare and Social Security benefits is at an all-time high.

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In spite of the COVID-19 pandemic creating tremendous uncertainty in the labor and financial markets, the 2021 “Retirement Confidence Survey” conducted by the Employee Benefit Research Institute (EBRI) and Greenwald Research found that 80% of retirees are confident in their ability to live comfortably throughout retirement, up from the 76% of retirees who held that view last year.

Meanwhile, 72% of workers are confident in their ability to retire comfortably, up 3 percentage points from last year, according to the survey.

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“Even with changes in the labor market, workers’ confidence in their ability to live comfortably in retirement remains high overall,” says Craig Copeland, EBRI senior research associate. “However, while resilience may be the watchword for 2021, three in 10 workers say the pandemic has negatively impacted their ability to save for retirement due to reduced hours, income or job changes. The group that was most likely to have their ability to save impacted were those more likely to have low confidence historically, such as those who are low income, not married and having a problem with debt.”

Eighteen percent of workers said their hours and/or pay have been reduced since February 1, 2020. Ten percent said they had been furloughed or temporarily laid off. In total, 39% of workers reported that their household experienced some type of negative job or income change since February 1, 2020.

On the flip side, 21% of workers reported having some type of positive change in work in the same time frame.

The workers who reported a negative change in work were more likely to say that the COVID-19 pandemic reduced their confidence in having enough money to live comfortably throughout their retirement years. Half of workers who experienced a negative change said they were either somewhat or significantly less confident as a result of COVID-19, compared with just 24% of those who did not have a negative change.

Retirees continue to report their lifestyle and expenses are as expected or better than they expected. Eighty percent of retirees say their overall lifestyle—including traveling, spending time with family or volunteering—is as expected or better, including nearly three in 10 saying their retirement lifestyle is better than they expected.

EBRI and Greenwald say these results are virtually identical to those measured pre-pandemic.

Sixty percent of retirees say their overall expenses and spending in retirement are at the levels they expected, but 26% say they are higher.

“About seven in 10 retirees report that their confidence in living comfortably throughout retirement was unchanged by the pandemic,” says Lisa Greenwald, chief executive officer of Greenwald Research. “Twenty-three percent feel less confident, and 5% feel more confident. Retirees’ top priorities for discretionary spending in retirement continue to be travel and spending on leisure or entertainment. Many of these activities were curtailed during the pandemic, perhaps leading to lower spending. That’s one reason why we may be seeing these results. Another is the adaptability and resilience of retirees demonstrated throughout the history [of our survey]. The survey shows retirees prioritize asset preservation and do not like the idea of spending down.”

Retirees’ confidence in Social Security—a major source of income for more than 60% of retirees—continued uninterrupted throughout the pandemic, Greenwald adds. Further, confidence among retirees (72%) and workers (53%) that Social Security will continue to provide benefits equal to those today reached an all-time high since the survey was first conducted 31 years ago, she says. As to how Medicare will fare, 75% of retirees and nearly 60% of workers also believe that will hold steady, another all-time high.

Only 22% of workers adjusted the age at which they plan to retire because of the pandemic and its economic impact; of this group, 17% plan to retire later.

Three-quarters of workers expect to work in retirement, even though only 30% of retirees say they have been able to find work.

More than 80% of workers who are offered a workplace retirement plan are satisfied with it, and 80% are satisfied with the investment options available. However, 30% said they would like more investment options, up from 22% in 2020. Twenty-five percent of workers would like to be offered investment options suitable for post-retirement, and 75% said they would put at least a portion of their savings in a product that would provide guaranteed monthly income for life.

In the past year, 30% of workers made changes to their plan, and, of this group, 60% increased their deferral rate, while 25% reduced or stopped contributions.

“Showing further resilience, just one in 10 workers who have saved for retirement say they have taken a loan, hardship distribution or early withdrawal from their workplace retirement plan in the past 12 months,” Copeland says. “The most likely reasons were for paying off credit card debt or for a COVID-related need.”

EBRI and Greenwald conducted the online survey of 3,017 Americans 25 and older—1,507 workers and 1,510 retirees—from January 5 through January 25.

Administration April 22, 2021

As More Retirees Remain in Plans, Retirement Income Solutions Follow

Sponsors also say the fiduciary oversight and lower fees that come with staying in the plan help participants.

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More retirement plan sponsors want their workers to remain in their plan once they retire for the economies of scale that brings to all participants in the plan. Sponsors also see it as beneficial for retirees, as it affords them fiduciary oversight of their assets and lower fees.

That said, recent research argues that as more retirees remain in retirement plans, plan sponsors will need to offer more retirement income solutions, including annuities.

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In a Voya study, “Hope for the Future: The Opportunity for Transformative Enhancement of Retirement Plans,” one retirement plan executive told the firm: “I believe that the new lifetime income projection requirements under the SECURE [Setting Every Community Up for Retirement Enhancement] Act will have a significant, positive, long-term impact on the way plan participants plan for and save for retirement, as well as how they transition into retirement.”

Sixty percent of plan sponsors surveyed by Voya say it is very likely that they will focus more on helping participants convert their plan account balances into income, and another 57% feel that employers will become more proactive in helping their participants achieve successful retirement outcomes.

These findings are in line with a report from T. Rowe Price, “What DC Plan Sponsors Prefer Retiring Participants Do and Why it Matters,” which found that just 17.8% of defined contribution (DC) plan sponsors prefer participants to leave their plans at retirement.

“Greater interest in retaining retired participants in plan seems to be a rapidly developing trend among plan sponsors,” T. Rowe Price says in its report. “After all, assessment of in-plan retirement income solutions—and, presumably, keeping participants who would use them—has been extensively discussed within the DC industry.”

The T. Rowe Price survey found that 39.3% of sponsors prefer that participants retain their DC plan balances in plan. Among plans with more than $500 million of plan assets, this jumps to 50%.

“Sponsors of larger plans are much more likely to favor retaining retiring participants in plan,” T. Rowe Price says in its report.

The reasons they give include the fiduciary oversight the plan offers (with 62% of sponsors either strongly agreeing or agreeing with that statement) and lower investment management costs (with 72% of sponsors either strongly agreeing or agreeing).

In a similar report from PIMCO, “Large 401(k) Plans Seek to Retain Retiree Assets,” Rene Martel, head of retirement at PIMCO, says, “Demand for income will only increase as more Americans enter retirement, and it is clear from the survey that plan sponsors are changing how they view 401(k)s from what historically had been a vehicle for savings to one that will generate income for participants.”

The survey of 47 consultants and advisory firm also shows that plan sponsors are pivoting to finding retirement income solutions, adds Julie Meggers, global head of consultant relations at PIMCO. “The survey’s findings reflect the ongoing changes in defined contribution [plans],” she says.

Consultants who participated in the survey said approximately three-fourths of 401(k) sponsors prefer to keep participant assets in-plan after they enter retirement, up from less than half in 2015. Allowing flexibility in income distribution, adding retirement education/tools and communicating the value of staying in plan were among the most popular consultant recommendations for plans seeking to hold onto retiree assets.

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