The percentage of workers who feel confident about their retirement security rebounded last year as Wall Street rallied, but the outlook remains bleak for workers without retirement benefits.
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Thirty-six percent of workers have less than $1,000 in savings and investments for retirement, according to the 2014 Retirement Confidence Survey from Employee Benefit Research Institute. This is an increase from 28% in 2013.
Jack VanDerhei, the institute's research director and co-author of the study, says that more than 70% of workers without a retirement plan like a 401(k) or IRA have less than $1,000 to fund their golden years. “If workers don’t have something provided by their employer, this means that they are saving virtually nothing on their own.”
Workers without a plan are four times as likely to report not feeling at all confident about their future financial security, the survey shows. Nearly 24% of those with a 401(k), pension or IRA plan described themselves as “very confident,” compared with 9% of those without a plan.
The percentage of workers feeling very confident about their ability to retire increased to 18% from a record low 13% in 2013. Assurance about having a financially secure retirement also ticked up to 28% up from 18%. The return of confidence can largely be attributed to Wall Street’s strong performance last year.
The 24th annual survey found that 55% feel either “very confident” or “somewhat confident” of their ability to live comfortably when they leave the workforce, an increase from 51% last year.
The increased confidence is almost exclusively among higher-income households ($75,000 or above) and is strongly correlated with those involved in a retirement plan like an IRA or 401(k). “When you go back and look at the average account balances of employer offered plans, people saw significant increases last year which boosted their confidence,” VanDerhei says.
Sixty-eight percent of households making less than $35,000 a year have less than $1,000 in savings.
The report is based on a telephone survey of 1,000 workers and 501 retirees.
“The uptick in confidence is a step in the right direction,” says Greg Burrows, senior vice president of Retirement and Investor Services at the Principal Financial Group. “But that doesn’t measure retirement preparations and mean that people are taking the right steps to create lasting savings.”
The study shows 4 out of 10 respondents are using calculators to determine their retirement financial needs -- a missed opportunity, according to Burrows. “When I review our clients, we have found that those who use these calculators save an average of about 40% more than those who don’t. That’s a big impact.”
More people are adjusting their retirement expectations with 65% of workers planning to work to help fund their golden years -- but that doesn’t mean that will happen. “There’s a difference between what they think is going to happen and what actually happens,” says VanDerhei. “The number of people planning to work longer has more than tripled in [24 years], but when we ask retirees, 40-50% say they retired earlier than expected, and most of the time it was due to a health issue, whether it was them, their spouse or other family member.”
Debt continues to be a drag on savings with 58% of respondents reporting problems with debt. “About 60% of workers indicated debt is a problem. That’s a big number but it just shows saving for long term is all about managing expenses and saving. It takes discipline -- financial security just doesn’t happen overnight.”