As more attention has been brought to the tens of millions of Americans with inadequate retirement savings, a common remedy has emerged from advisors, policy experts, and savers themselves: those without enough money can delay retirement in order to make up for savings gaps.
According to this year’s Retirement Confidence Survey issued by the Employee Benefits Research Institute, almost 4 in 10 workers expect to retire at age 70 or beyond.
Another 14 percent of respondents plan to retire between age 66 and 69. Only 23 percent expect to retire at age 65.
But delaying retirement is likely to be available to far fewer workers than are counting on the option. This year’s survey showed that nearly half of retirees left the workforce before they had planned, a reality consistent with EBRI’s previous retirement confidence surveys.
Some retirees were fortunate enough to leave the workforce because they could, but most left early for health reasons or to care for a family member. Others cited downsizing as the reason.
The survey shows a considerable gap between workers’ expectations for a delayed retirement and the actual experience of retirees.
Only 4 percent of retirees reported working to age 70, while more than two-thirds retired before 65; and 39 percent retired before age 60.
“The fact that half of current retirees stopped working early is a very sobering statistic for those that plan to delay retirement,” said Luke Vandermillion, vice president of retirement and investment services at Principal Financial Group, one of the 17 underwriters of EBRI’s survey.
“I think it would be a mistake for people to assume they can work longer to cover savings shortfalls,” added Vandermillion. “For a lot of people, that won’t be an option."
Overall retirement confidence remains steady
Americans’ general confidence in their ability to retire comfortably held steady in EBRI’s 2017 survey, which is the longest running of its kind.
Six in 10 respondents said they are very or somewhat confident they will have enough money to fund retirement, compared to 64 percent in 2016. General confidence hit 70 percent in 2007, before plummeting in the wake of the financial crisis to about 50 percent.
Over the course of EBRI’s 27 years of conducting the survey, confidence hit a pinnacle in 1993, when 73 percent of respondents were at least somewhat confident in their ability to retire comfortably.
Perhaps the most consistent data is the persistently high number of Americans with minimal savings.
“Year after year we find significant numbers of people with very little saved for retirement,” said Steve Blakely, EBRI’s communication director, in a press call.
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Only 56 percent of workers said they are currently saving for retirement. Nearly one-quarter of workers report having less than $1,000 saved; for workers without a workplace retirement plan or IRA, 67 percent have less than $1,000 saved.
One in 10 workers have between $50,000 and $100,000 saved, and 20 percent have over $250,000.
This year’s study released as state plans, fiduciary rule hang in the balance
The release of this year’s study comes as the Senate is preparing to vote on rolling back a Labor Department safe harbor that would make it easier for states to mandate participation in state-administered IRAs, and as the Trump Administration is considering rescinding or revising Labor’s fiduciary rule, which will require a best interest standard on advice to IRA investors and 401(k) plan participants.
EBRI’s study shows that those with access to a retirement plan are 10 times more likely to save than those without a plan. Of employed surveyed workers, 73 percent report having access to a workplace plan.
Asked if the numbers support the need for state-administered plans as way of expanding access to workplace savings option, Principal’s Vandermillion stopped short of a full endorsement.
“At the end of the day, we are all for making broader coverage available,” said Vandermillion. “Whether it’s an IRA or an employer-sponsored plan, having a savings option puts workers in a better position to save for retirement.”
Only 24 percent of workers and 39 percent of retirees said they work with an investment professional.
The majority of those that do seek help strongly or somewhat agree they are getting advice that is in their best interest (74 percent of workers say as much, and 70 percent of retirees).
Lisa Greenwald, vice president of Greenwald and Associates, and a co-author of EBRI’s 2017 survey, says the numbers suggest that savers are confident they are getting advice that serves their best interests.
“Once people commit to working with an advisor they tend to trust them,” said Greenwald. “Savers mostly believe the advice they are getting from advisors is in their best interest.”
The data reflecting investors’ confidence that their best interests are being served was unsurprising to Vandermillion.
“I think it’s unlikely that most people understand the difference between a suitability standard of care and the best interest standard,” said Vandermillion. “What the numbers tell me is the vast majority of people think advisors should be doing what is best for investors.”
Ultimately, savers need to understand why they hire advisors, how advisors are paid, and how success is measured, thinks Vandermillion.
“People naturally want advisors to work in their best interest, but there are different ways to get to that. You can deliver those solutions in a commission-based model or a fee-based model,” he added, referencing the fee-based compensation model favored under Labor’s fiduciary rule.