Older workers are feeling more confident about their ability to retire comfortably, but younger workers, particularly those with defined contribution plans, are growing increasingly worried.
A survey by consultant Towers Watson & Co., released Sept. 1, reveals that half of older workers age 50 to 64 who were surveyed in May and June are very confident about having enough financial resources to live comfortably five years into retirement, up from 44% in March 2009.
A separate survey, by Charles Schwab Corp., found 54% of workers age 50 to 60 do not expect to delay their retirement, while 38% said they will retire later than originally planned. Eighty-eight percent of respondents in the Schwab survey, which was released Aug. 31, said they plan to continue working after becoming eligible for retirement, with 28% saying they needed more money and 25% citing a desire to remain mentally, physically or socially active.
Almost three quarters (74%) of respondents to the Charles Schwab survey said they would not need financial support from others at some point during retirement. Fifty-four percent of those same respondents said they would enter retirement debt free.
Tad Fryer, vice president and branch manager, St. Louis area with Charles Schwab, said in a telephone interview that the results confirm what he's heard anecdotally from clients.
“I think (clients are) very optimistic,” he said. “When people pick a retirement date ... they don't tend to let market volatility dissuade them from something that's been a lifelong dream.”
He said the average savings rate of Charles Schwab clients has increased to 6% now from 2% in 2007.
Similarly, workers in retirement plans administered by MassMutual Retirement Services Division, Springfield, Mass., are showing increased confidence in their ability to retire, according to a report released by the company Aug. 31.
Ninty-six percent of workers in retirement plans administered by MassMutual are either maintaining or increasing their savings rate through the quarter ended June 30.
“We were pleasantly surprised by a couple of things,” E. Heather Smiley, chief marketing officer for MassMutual's Retirement Services Division, said in an e-mail response to questions. “First, I believe that MassMutual participants are holding steady because we have been aggressively communicating with them on the importance of saving consistently and adhering to a long-term investment strategy, and this message seems to be taking hold. Our second-quarter communications focused on increasing retirement savings and, in fact, among participants over age 50, those who did increase their savings rate did so by an average of 5.43% which I think is an excellent result.”
While some workers appear to be regaining confidence in their ability to retire, younger workers and those with DC plans only are more skeptical, according to Towers Watson.
The percentage of workers age 50 to 64 concerned about whether their employers will reduce benefits declined to 39% in 2010 from 44% in 2009, and those concerned about the elimination of benefits dropped to 30% from 38%, respectively.
Younger workers — under age 40 — were less confident. Sixty-eight percent said they worry that benefits will be reduced, up from 61% in 2009, and those concerned about elimination of benefits increased to 59% in 2010, up from 42% a year earlier.
The Towers Watson survey also showed that 52% of older workers in defined benefit plans are confident they can live comfortably 25 years into retirement, compared with 34% of those with DC plans.
“We're seeing now that the markets have come back and people are feeling more comfortable, but interest rates are so low now that it's difficult for people in DC programs to take that accumulated wealth and convert it into retirement income,” Kevin Wagner, an Atlanta-based senior retirement consultant at Towers Watson, said in a telephone interview.
He said the general industry shift to DC plans from DB means many employees will have to work longer, increasing the age of the work force.
“Plan sponsors of DC-only retirement programs will likely see an older work force over time and, perhaps, be challenged in their need to bring in younger employees with new ideas and skill sets,” he said.
The Charles Schwab survey questioned older employees about advice to their younger counterparts. Fifty percent suggested they “live within their means,” while 30% said to “begin to save at an early age.” n