American workers are only a little less confident in their ability to retire with enough money now than a year ago, but they still are failing to compute how much they need to save.
Twenty-one percent of workers think they will have enough money to retire comfortably, down from 23% in 2002, according to the 13th annual Retirement Confidence Survey by the Employee Benefit Research Institute, American Savings Education Council and Mathew Greenwald & Associates. Another 33% are very confident of having enough money to take care of basic expenses during their retirement, down from 38% in 2002.
Meanwhile, more employees in 2003 are not at all confident they will have enough money in retirement - 16%, up from 10% last year.
"We ask how confident people are that they will live comfortably in retirement, but they do not know because they don't know how much money it takes," said Mathew Greenwald, president of the Washington-based firm that bears his name. "People answer based on denial and wishful thinking and lack of knowledge and understanding of what a sum of money translates to in retirement."
73% have DC plans
Some 73% of workers have defined contribution plans available at work. Of those who participate in those plans, 78% contribute money to the plan and 32% increased their contribution within the past year. Five percent decreased their contribution, said Ruth Helman, senior research director of Greenwald.
Still, only 12% of employees expect a defined contribution plan will be their largest source of income in retirement. The largest percentage (18%) expect that either money from an employer's defined benefit plan, or personal savings or investments outside of work will be the biggest sources of income in retirement. Social Security, at 13%, was ranked above defined contribution plans.
But three years of a down stock market have taken their toll on baby boomers. More workers 45 years or older plan to postpone their retirement, 24%, up from 15% in 2002. The main reasons: stock market losses; rising eligibility age for Social Security benefits; higher-than-expected cost of living; and the desire to ensure financial security in retirement.
Seventy-three percent of workers born between 1955 and 1964, and 70% of workers born between 1946 and 1954, expect to work for pay in retirement. But only 65% of people born in 1945 and earlier, and 68% of those born in 1965 or later, expect to work in retirement.
70% plan to keep working
Overall, 70% of employees stated they plan to work for pay after they retire, but the survey indicates they might be in for a rude awakening. Only 28% of retirees actually have worked for money in retirement. Moreover, four in 10 retired earlier than they had expected because of disability or downsizing.
"Most people when they look into the future see their parents in retirement and their parents are OK. It's hard to see themselves having a hard time, but they won't be in their parents' situation," Ms. Helman said. "Their parents are more likely to have a defined benefit plan than they are."
Most workers are not spending a great deal of time preparing for retirement. Sixty-one percent of employees have not calculated how much money they will need to save for retirement. Thirty-six percent of those who have figured out how much they will need to save do not know or remember the figure; 66% of those who did perform the calculations made them more than a year ago. Of those who tried to figure out how much they will need, 34% used a worksheet, 24% asked a financial adviser, and the rest either did it on their own, guessed, heard or read a figure, or don't know.
Nearly half of employees, 47%, stated they received educational materials from their employer or retirement plan provider at work in the past 12 months. Eighteen percent of those who got education materials in the past year indicated they made changes as a result of receiving these materials. Of those workers who made changes, 40% saved more, 37% changed their asset allocations and 12% began saving for the first time.
`Next generation of advice'
"Workplace education has worked, but not totally satisfactorily because that population is not setting aside enough money," Mr. Greenwald said. "We need the next generation of advice ... Education does not address the psychological impediments to setting aside money ."
Twenty-three percent have access to investment advice through their employer. Twenty percent of those offered advice stated they asked for recommendations on how to invest their money, and of people who asked for advice, 57% implemented the recommendations.