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Most workers have savings under $25K

A new survey says that only 14% of US workers feel very certain they'll have enough money to retire comfortably.

By MSN Money Partner Mar 13, 2012 4:44PM

This post comes from Margaret Collins at partner site Bloomberg.

 

Bloomberg on MSN MoneyAbout 60% of U.S. workers said they have less than $25,000 in savings and investments, according to a new Employee Benefit Research Institute survey.

 

Workers' confidence in their ability to retire remains historically low, with about 14% saying they were very certain they'd have enough to live on comfortably, according to the report released Monday by EBRI, a Washington-based nonprofit that studies employee benefits. That compares with a high of 27% in 2007.

 

"People get the fact they shouldn't be optimistic, but instead of saying 'I'm going to save more today,' they just say 'I'm going to defer my retirement age once I get to 65,'" said Jack VanDerhei, EBRI's research director and a co-author of the study.

 

The savings figure doesn't include the value of a person's home and any traditional pension plan, if they have one, VanDerhei said in an interview before the study was released. The median existing single-family home price was $154,400 in January, down 2.6% from January 2011, according to the National Association of Realtors.

 

About half of all U.S. workers (.pdf file) don't have access to a retirement savings plan through their employer, and many younger people haven't been saving long enough to build a large balance, VanDerhei said.

 

"If you're working for an employer who doesn't sponsor one for the majority of your working career, employees just don't save on their own," he said. "So much of our retirement hopes for people depends on what they do in their defined contribution plans now." (Post continues below.)

Retirement security

Regulators and legislators have been looking at Americans' retirement security because life expectancies are increasing and savings have shifted from traditional pension plans, where employers generally provided retired employees with lifetime payments, to 401k accounts that individuals largely are responsible for funding.

 

EBRI worked on the study with research firm Mathew Greenwald & Associates Inc. About 1,000 workers and 259 retirees age 25 and older were interviewed by telephone in January for the survey, which EBRI has conducted for 22 years.

 

The low levels of confidence are a good thing because it will hopefully lead people to take action, said VanDerhei. Yet betting on working longer than age 65 rather than saving more is very risky. Half of the retirees surveyed said they were forced to retire earlier than they planned, he said.

 

Many workers have more immediate worries than saving for retirement, such as keeping their current job, the study said. Less than a third, or 28%, said they were very confident of having paid employment for as long as they need it, and 16% showed the same assurance that their investments would increase in value.

 

Sooner than later

Individuals should assess their current situation and make adjustments to their savings and spending sooner rather than later to prepare for retirement, Greg Burrows, senior vice president for Des Moines, Iowa-based Principal Financial Group, one of the report's underwriters, said. People should target saving 11% to 15% of their wages annually including any employer contribution, Burrows said.

 

A separate study released last week by T. Rowe Price Group Inc., a mutual fund firm in Baltimore, and research firm Harris Interactive found that about 60% of investors between age 21 and age 50 aren't confident they'll have enough money for retirement. The T. Rowe survey was conducted online in December and questioned 860 adults with at least one investment account. Investors said they expected to retire on average at age 62 and live an average of 22 years in retirement, the study found.

 

Funding annuities

The government has focused on the risks of people outliving their savings in hearings and studies of its own as Americans live longer and are more responsible for managing their retirement money. The U.S. Treasury Department proposed two regulations last month to make it easier for workers to fund an annuity through their company-sponsored pensions or 401k accounts. Annuities are insurance contracts that guarantee a lifetime stream of income in exchange for up-front payments.

 

About 12% of the retirees surveyed by EBRI said they or their spouse had bought a financial product that pays them guaranteed income each month for the rest of their life.

 

More on Bloomberg and MSN Money:

1Comment
Mar 14, 2012 4:42PM
avatar
Note that many companies make excellent profits and have solid defined benefit pensions in place, like Otis Elevator and GE.  Many of the plans that were trashed were done so not because the company couldn't pay them, but for other reasons.
For example: when Dick Cheney was CEO of Halliburton, a loophole in the law was used to raid the employees' pension fund of $25M, claiming the company needed to money to continue operations.  In the blink of an eye, the board of directors then awarded Cheney an extra $20M in his pension.

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