Big Dreams, Small Savings, Little Planning Results of the 1997 Retirement Confidence Survey

October 16, 1997
Maureen Richmond
(202) 775-6341
richmond@ebri.org, EBRI
Dallas Salisbury
(202) 775-6322
salisbury@ebri.org, EBRI

 

Washington, DC -- October 16, 1997 -- Americans dream of early retirement, but have accumulated little in the way of savings, and have done even less planning to make that retirement happen, according to the 1997 Retirement Confidence Survey (RCS) released by the Employee Benefit Research Institute (EBRI), the American Savings Education Council (ASEC), and Mathew Greenwald & Associates (MGA).

Encouraging news showing a growing percentage of savers (69 percent of workers) also reveals a dismally unprepared population. Only 27 percent of working Americans have any idea of what they will need to accumulate in order to retire when and how they want. Only 36 percent, slightly more than one-third, have even tried to determine how much they need to save by retirement (only 21 percent of current retirees tried).

"There is good news in that the number of people who are saving for retirement has been steadily increasing, from 61 percent in 1994 to 69 percent this year and this is better than the 55 percent of retirees who saved," said EBRI President Dallas Salisbury. "However, we continue to find that there is an alarming lack of planning to accompany that saving." "We know from our survey that many Americans are intimidated by retirement planning -- 29 percent of workers who have not tried to calculate how much they will need gave as a reason that they are afraid of the answer, 20 percent said the process is too complicated, and 39 percent said they can't find the time. We have to impress on them that retirement planning is not rocket science -- it just takes a little time, and the sooner Americans get started, the better off they'll be," said ASEC President Don Blandin.

Although the dismal planning percentage crosses age and gender, the RCS reveals a generation gap and some significant gender differences in attitudes and expectations relating to retirement. Coupled with findings on anticipated sources of retirement income and perceptions of Social Security's viability and Medicare's future, the overall result suggests there is an underlying wave of change in how Americans perceive their prospects for the "Golden Years."

Big Dreams, Small Saving, Little Planning -- Major Consequences

  • Two-thirds of workers would like to retire before age 65. One-third would like to retire by age 55 -- yet only 15 percent expect to retire that early. Seventy-two percent of all workers plan to work after retirement -- especially younger boomers, those currently ages 34-44. The 72 percent represents a 7 percentage point increase over the 1996 RCS.
  • Americans may be deluding themselves about their retirement prospects. While 68 percent of workers are somewhat or very confident that they will have enough money, only 6 percent still believe that Americans other than themselves are saving enough money to live comfortably throughout retirement.
  • Retirement may bring some unpleasant surprises. Among current retirees, 30 percent of those who retired earlier than planned and thought they could afford to do so now report that their standard of living has declined, and 36 percent are not confident that they will have enough to live comfortably through their retirement years.
  • Less than one-third of pre-boomers and only 27 percent of early boomers report retirement accumulations of more than $100,000. Fifteen percent of late boomers and 25 percent of generation X'ers still report no retirement accumulations.

Salisbury noted that these findings were particularly disturbing in view of what people actually need to have in savings to generate a comfortable retirement income. For example, "for a person who has saved $100,000 -- currently the high end of the savings equation -- and put that money into an annuity, this amount will only generate about $886 a month in income, or $10,632 a year. Furthermore, that amount does not increase with inflation over the years," said Salisbury. "$10,632 a year is just at the poverty line for a family of two. Social Security will keep them above the poverty line, and employer-funded plans, if available, will help them further, but would most workers find this an acceptable amount?"

Retirement: The New Generation Gap

  • There is a major generational gap in expectations of how retirement will be funded. Sixty-one percent of generation X'ers (ages 33 and younger), compared with 42 percent of pre-boomers (ages 53 and older), expect some form of personal savings to be their most important source of retirement income. Thirty-two percent of early boomers (ages 45-52) expect employer-funded retirement benefits to be their most important source of funds, compared with 17 percent of generation X'ers.
  • There are members of the younger generation acting on the idea of personal responsibility. Nineteen percent of generation X'ers -- who are 30 years or more away from retirement -- have saved $50,000 or more.

Confidence Ups and Downs
The 1997 RCS reports that the percentage of workers very confident in their retirement income prospects rose 6 points over the past year to 25 percent, continuing a steady increase in confidence since 1993. At the same time, the RCS reported that the percentage of people not confident dropped 7 percentage points over the past year to 30 percent in 1997. Overall, however, those not confident have increased, from 26 percent in 1993 to 30 percent this year. These changes result from the fact that as more workers develop a clearer feeling on retirement prospects, they move from the middle ground of "somewhat confident" into either the very confident or not confident ranks. However, the increased very confident percentages may portend future problems.

"I believe that the particularly strong optimism exhibited in this year's RCS is a result of recent economic trends," said MGA President Mathew Greenwald. "It appears that today's workers are making projections about their long-term economic security based on short-term economic gains and not really thinking through how the economy and their saving will fare over the long term."

The Gender Gap

  • Working women are less confident than working men about retirement. While 32 percent of men surveyed indicated they were very confident of having enough money for a comfortable retirement, 18 percent of women felt the same way. Thirty-four percent of women were not confident, compared with 27 percent of men.
  • Working men are more confident in their personal financial preparations -- 36 percent of men are very confident, compared with 27 percent of working women.

Entitlements: Will Social Security and Medicare Stand By Me?

  • Confidence in Social Security falls dramatically between older and younger Americans. Twenty-one percent of working pre-boomers believe Social Security will be their most important source of retirement income. Only 5 percent of generation X'ers think it will be their most important source of retirement income.
  • Attitudes toward Medicare benefits reflect a similar generational breakdown. Sixty-six percent of working pre-boomers have confidence that it will be there for them. Only 27 percent of generation X'ers believe that Medicare will be providing health insurance when they retire.
  • There are indications that Americans would prefer paying more in Social Security payroll taxes as opposed to having Social Security benefits reduced. If forced to make a choice, workers chose higher payroll taxes for workers over reduced benefits for retirees -- 62 percent to 33 percent. The percentage was similar among current retirees -- 64 percent to 29 percent. Working women were more likely than men to favor payroll tax increases over benefit reductions (68 percent vs. 56 percent for men).

IRAs: Underused and Misunderstood
The RCS also explored issues such as individual retirement accounts (IRAs). Americans' lack of knowledge about IRAs equals their lack of general retirement planning skills and motivation. Less than one-third of respondents could correctly answer all three true/false questions about IRAs. Only 16 percent found the eligibility requirements for IRAs very clear.

Education Works!

  • Providing educational material and information works. Of those participating in an employment-based retirement plan, 86 percent use employer-provided materials or attend employer-sponsored seminars when provided. In addition, 45 percent report the information/seminars led them to begin contributing, 49 percent reported it led them to change asset allocations, and 38 percent report they changed the amount they contributed.
  • Workers who contribute to a retirement savings plan found financial professionals (35 percent), employer/providers (33 percent), and their spouses (30 percent) very helpful in making retirement savings decisions. Least helpful were radio/television (21 percent not helpful), newspapers/magazines (12 percent not helpful), and Internet/on-line services (11 percent).

"Education is the key to helping turn Americans into planners with a goal, who then save accordingly to achieve financial independence in retirement," said Blandin.

These findings are part of the seventh annual Retirement Confidence Survey (RCS), a survey that gauges the views and attitudes of working and retired Americans regarding retirement, their preparations for retirement, their confidence with regard to various aspects of retirement, and related issues. The survey was conducted in July 1997 through 20-minute phone interviews with 1,001 individuals (772 workers and 229 retirees) ages 25 and older. Random digit dialing was used to obtain a representative cross-section of the U.S. population. The survey was co-organized by the Employee Benefit Research Institute (EBRI), a private, nonprofit, nonpartisan public policy research organization, the American Savings Education Council (ASEC), a partnership of more than 200 private- and public-sector institutions dedicated to raising public awareness of what is needed to ensure long-term personal financial independence, and Mathew Greenwald & Associates, Inc., a Washington, DC-based market research firm.

The 1997 RCS was funded by grants from the following organizations: AARP, AT&T, American Council of Life Insurance, American Express Financial Advisors, Aon Consulting, Barclays Global Investors, Citibank N.A., Fidelity Institutional Retirement Services Co., Investment Company Institute, John Hancock Mutual Life Insurance Co., ManuLife Financial, Massachusetts Mutual Life Insurance Co., Milliman & Robertson, Inc., PaineWebber Retirement Plans, The Principal Financial Group, The Prudential, Society for Human Resource Management, State Street Global Advisors, TIAA-CREF, T. Rowe Price Associates, The Vanguard Group, and Zurich Kemper Investments, Inc.