How do they expect to retire on THAT?
by Nevin AdamsMr. Adams is affiliated with the Employee Benefit Research Institute (EBRI)
In the several days since the 2014 Retirement Confidence Survey(1) hit the streets, I think I’ve heard that question more than any other. “That” in this case is the widely cited finding of the survey that 36% of respondents have less than $1,000 (aside from home equity and defined benefit plan) saved – and that’s up from 20 percent in that category in 2009 and 28 percent a year ago(2).
So, how does that group expect to retire?
We can’t know for certain, but there are several things that might offer a better understanding. First, many of those probably AREN’T expecting to retire on that, at least not any time soon; many are young (about half of the 25-34 age group are in this savings range).
Second, they may not be “expecting” to retire; about 16 percent of those with less than $15,000 set aside say they’ll “never” retire, compared with 7 percent of total respondents).
Most of the individuals in this group are, as you might expect, lower-income. More than 60 percent reported household income of $25,000/year or less. Little wonder that saving for retirement might be taking a back seat to other matters.
Even if they are expecting to retire some day, they may have concerns about that reality. This group of low/non-savers, for the very most part, had NO retirement account – 80 percent of the 36 percent were in that category. Respondents with no retirement account not only tended to have much lower confidence levels, they were also more likely to think they needed to be saving 50 percent of their current paycheck to achieve a financially comfortable retirement – a perception that might be a reality for this group, based on their reported savings.
Finally, while the trend line for this particular group isn’t encouraging, it’s worth noting that Social Security was cited as a major source of income for nearly two-thirds of the current retiree respondents to the 2014 RCS (as it has been over the history of the RCS), even though current workers tended to have lower expectations for the primacy of Social Security benefits in their retirement income stream.
One need only look to the replacement rates that Social Security is projected to provide to appreciate the significance of that program as a retirement income source for many, particularly low- and middle-income workers(3). In fact, a recent EBRI analysis of data from the HRS indicates that Social Security provides more than half the total household income for more than half those ages 65-74, as it does for roughly two-thirds of the households over that age (4).
Indeed, one might well wonder how people expect to live on savings of less than $1,000 in retirement. However, the data suggest that many – already are.
(1) The 2014 Retirement Confidence Survey is available here.
(2) The RCS is, of course, a snapshot at a point in time. It’s important to keep in mind that the savings reported are not necessarily what those respondents will have a year from now, or certainly a decade hence. It’s also important that projections about future retirement security consider not just where things stand at a static point in time, but, as EBRI’s Retirement Savings Projection Model (RSPM) does, the impact of future events and changes in behavior. More information on the RSPM is online here.
(3) See “Annual Scheduled Benefit Amounts for Retired Workers With Various Pre-Retirement Earnings Patterns Based on Intermediate Assumptions, Calendar Years 1940-2090.” (Link here)
(4) See “Income Composition, Income Trends, and Income Shortfalls of Older Households” online here.