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Published May 2006

Survey: Disconnect between
retirement expectations, savings

By Kimberly Hilden
SCBJ Assistant Editor

When it comes to enjoying one’s golden years, Americans’ expectations are as high as their savings are low, according to the 16th annual Retirement Confidence Survey.

“We find there are a lot of people who need to be saving more than they are, if they hope to be able to afford a comfortable retirement,” said survey co-author Jack VanDerhei, in announcing the results in April.

Sponsored by the Employee Benefit Research Institute, the survey found that while 68 percent of current workers age 25 and older expressed some level of confidence in their retirement prospects, an equal number said they and their spouses had accumulated less than $50,000 in retirement savings.

Also, while 59 percent of current workers said they hope to have a retirement standard of living equal to or higher than their working years, 58 percent said neither they nor their spouses had calculated just how much money they would need to retire comfortably.

What’s with the disconnect?

In a telephone interview, VanDerhei, a business school professor at Temple University in Philadelphia, said he suspected that today’s workers are basing their expectations on the current generation of retirees and a standard of living whose foundation isn’t expected to hold up in the future.

“What they are completely missing is that Mom and Dad had defined benefit plans of a traditional type and retiree health (benefits), and these are becoming more unlikely,” he said.

And not just because of the recent pension-cutting plans contemplated by corporations facing financial troubles, though that’s a factor. There also is the fact that defined benefit plans such as pensions have been on the decline for years, being passed up by defined contribution plans such as the 401(k) in 1997, according to EBRI.

In a recent report, the research institute noted that 61 percent of private-sector retirement assets today are held in defined contribution plans while only 39 percent are found in defined benefit pensions.

Now, it’s a matter of getting people to contribute toward their retirement.

According to the Retirement Confidence Survey, there was strong support for automatic enrollment in a 401(k) plan for new workers, with 69 percent favoring automatic enrollment and 65 percent supporting automatically increasing the percentage of salary contributed with each pay raise.

While some employers have ventured into automatic enrollment for their workers, many more are waiting for the federal government to adopt new policy in regard to Section 404c of the Employee Retirement Income Security Act, VanDerhei said.

Under Section 404c, employers are not liable for investment decisions — good, bad or ugly — made by the employee in a defined contribution plan. But under an automatic enrollment program, where employees might not make such investment decisions, there is concern that the employer could hold fiduciary liability should the investments fail to produce a certain rate of return.

“Employers just don’t want to get burned,” VanDerhei said.

Other findings in the retirement survey included:

  • Fourteen percent of current workers said they thought they would need less than 50 percent of their pre-retirement income to live comfortably, and 36 percent thought they would need between 50 percent and 70 percent. Meanwhile, 62 percent of current retirees report that their income is 70 percent or more of their pre-retirement income.
  • While 58 percent of current workers said they and their spouses do not expect to get health insurance from their employers when they retire, they aren’t saving enough to pay the health-care bills, as research from EBRI showed that $210,000 would need to be saved by age 65 to pay for insurance to supplement Medicare and other medical expenses during retirement. Only a quarter of workers age 55 and older say they have saved more than $250,000 for their entire retirement. That compares with 12 percent for those between the age of 45 and 54 and 4 percent of workers between the age of 25 to 34.

The survey, conducted in January, was based on interviews with more than 1,200 people age 25 and older in the United States and has a margin of error of plus or minus 3 percentage points.

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