Retiree confidence in critical aspects of retirement security declines, while workers’ overall confidence creeps upNew research from the annual report of the Employee Benefits Research Institute (EBRI) and Greenwald Associates. Read the entire study here.
WASHINGTON – This year’s Retirement Confidence Survey (RCS) finds only a third of retirees very confident in their ability to live comfortably throughout retirement (32 percent). While this is comparable to last year, retiree confidence in having enough money to cover basic expenses and medical expenses has dropped: 80 percent say they are very/somewhat confident about covering basic expenses this year compared to 85 percent in 2017; and 70 percent say they are very/somewhat confident about covering medical expenses this year vs. 77 percent in 2017.
In addition, retirees’ confidence that Medicare and Social Security will continue to provide benefits equal to what retirees receive today has significantly declined compared to last year, with fewer than half saying they are very or somewhat confident (46 percent very or somewhat confident in Medicare this year vs. 52 percent in 2017; 45 percent very or somewhat confident in Social Security vs. 51 percent in 2017). Only 7 percent of retirees say they are very confident that each of these will continue to provide the same level of benefits they do today.
This is the 28th annual RCS by the nonpartisan Employee Benefit Research Institute (EBRI) and research firm Greenwald & Associates. It is the longest-running survey of its kind in the nation, exploring the retirement outlook of both workers and retirees.
Retirees More Confident Than Workers
“Retirees continue to be more confident in their retirement security than workers,” noted Craig Copeland, EBRI senior research associate and co-author of the report. “Just 17 percent of American workers say they are very confident in their ability to live comfortably throughout retirement, compared with nearly a third of retirees who say that are very confident. However, nearly two in three workers (64 percent) say they feel very or somewhat confident in their ability to retire comfortably.” Copeland points out that the percentage of workers who say they are at least somewhat confident is up from 60 percent in 2017.
“Health care expenses in retirement appear to be playing a notable role in retirees’ confidence. Retirees are less confident in being able to afford medical expenses and the share very confident in affording long-term care also declined,” said Lisa Greenwald, executive vice president of Greenwald & Associates, and co-author of the report. “Half of retirees say they didn’t even try to calculate health expenses before retirement, and more than four in ten retirees say their health care expenses are higher than they expected. However, those that did the calculation are less likely to report health is costing them more than expected,” she said.
A key disconnect reported in the survey is between workers’ expectations about relying on income from work in retirement, compared to retirees’ actual experience: 68 percent of workers expect income from working to be either a major or a minor source of income in retirement, whereas only 26 percent of retirees say that this income is a major or minor source. Workers also have different expectations around Social Security than retirees have experienced: only a third of workers (36 percent) expect Social Security to be a major source of retirement income, compared to 67 percent of retirees who report that Social Security is a major source of income in retirement.
Workers may be looking for different ways to fill the retirement income gap.
- Eight in ten workers (81 percent) say they expect that a workplace retirement savings plan, such as a 401(k) or 403(b), will be a major or minor source of income.
- By comparison, half of retirees (48 percent) say this type of plan is not a source of income for them.
- Those with a defined contribution (DC) plan like a 401(k) are far more likely to say they are confident in their ability to live comfortably in retirement: 76 percent of workers with a DC plan are at least somewhat confident in their ability to live comfortably in retirement versus 46 percent of those without a DC plan.
“Satisfaction with DC plans is very important because that will encourage their use in building up assets for retirement. However, the data suggest many plan participants don’t know what to do with their DC plan assets at retirement. Three in ten (31 percent) say they don’t know whether they will roll the money into an IRA, keep it in the plan, or cash it out,” Copeland said. “At the same time, participants are interested in guaranteed lifetime income options either inside or outside of their plan, which could be due to the lower expected reliance of workers on other guaranteed income sources like Social Security and traditional pension plans.”
Four in five current DC participants express interest in putting some or all of their money in guaranteed lifetime income products, regardless of whether the product is an in-plan investment option or a separate product purchased outside of the plan at the time of retirement. Furthermore, 21 percent of current DC participants say they will use their money in their plan to purchase a product that provides guaranteed monthly income for life, a notably larger share than the 7 percent of retirees who report that they have purchased such a product with DC assets.
Excerpts from the 2018 Retirement Confidence Survey
Why are workers confident?
Workers appear to be very positive about their workplace defined contribution (DC) retirement plans and that may be impacting overall retirement confidence. Those with a DC plan are far more likely to be confident in their ability to live comfortably in retirement. More than 4 in 5 with a DC plan report being very or somewhat satisfied with the plan overall, and with the investment options available to them. Eight in ten workers expect that these plans will be a major or minor source of income for them in retirement.
Still, some workers may be guilty of false confidence and RCS data suggests they may be making some faulty assumptions:
- Workers expect to retire later than retirees actually do.
- Workers plan to work in retirement and 2 in 3 expect work for pay to be a major or minor source of income. Only 1 in 4 retirees say working is a source of income for them.
- Nearly 2 in 3 workers call debt a major or minor problem and more than 4 in 10 say it’s negatively impacting their ability to save for retirement. At the same time, about one quarter of retirees say debt is negatively impacting their lifestyle.
Why are retirees less confident?
Retirees’ overall confidence shows signs of decline, but their confidence in being able to afford medical and long-term care
expenses in retirement is down significantly. On a related note, their confidence that Social Security and Medicare will continue to provide benefits equal to what retirees receive today has decreased. At the same time, more than 4 in 10 retirees report that their health care expenses in retirement are higher than they expected, and another 1 in 4 say long-term care costs have been higher.
There are still other factors that may be dampening retiree optimism that are not measured in this survey, such as low interest rates. As in the past, 2 out of 3 retirees in this survey report that they aim to maintain or continue to grow their asset level in retirement.
That said, these retirees report the value of their assets is largely where they would expect them.
Confident workers and retirees are healthy workers and retirees
This year’s RCS data emphasizes the impact health and health care expenses have on retirement confidence and financial well-being. Six in ten workers who are confident in retirement overall are in excellent or good health; among those not confident about retirement, only 28% report such good health. The same is true for retirees: 46% of confident retirees are in good health compared to just 14% who are not confident. Retirees in fair or poor health are more likely to have difficulty managing their money in retirement, including maintaining their pre-retirement lifestyle, managing day-today finances, and of course, managing health care costs.
Planning for healthcare in retirement may pay off
Only 19% of workers and 39% of retirees have tried to calculate how much money they would need to cover healthcare costs in retirement. Retirees who made this calculation are less likely to have experienced higher-than-expected health costs and are more likely to say costs are as expected. Given the current lack of planning, it’s not surprising that 7 in 10 employed workers and 6 in 10 employed retirees say that workplace education on health care planning for retirement would be helpful.
The survey report, “The 2018 Retirement Confidence Survey,” is available here.