Physical Workers’ Retirement Confidence Not Necessarily Realistic

A new report derived from the 2018 Aegon Retirement Readiness Survey highlights the challenges faced by physical workers, those who spend the majority of their time laboring away from a desk.

Authors of the survey report include Catherine Collinson, executive director, Aegon Center for Longevity and Retirement, and CEO and president of the Transamerica Institute and Transamerica Center for Retirement Studies; Leandro Palmeira, research director, Instituto de Longevidade Mongeral Aegon; and Mike Mansfield, program director, Aegon Center for Longevity and Retirement.

The researchers note that their findings are based on a global survey conducted in 15 countries, including the United States, Australia and the United Kingdom. The list also includes large emerging economies such as India and China.

Aegon’s “physical worker sample” consists of men and women who are not fully retired and self-identified as physical workers by answering “yes” to the following question: “Does your main occupational activity involve undertaking intensive physical activity?” As noted in the report, common examples of work involving extensive or sustained periods of intensive physical activity might include agricultural roles, construction and building trades, metal workers, mining and drilling, manufacturing and machine operators, military personnel, emergency responders, cleaning crew, etc.

According to Aegon, physical workers are more likely to be men (60% of the physical workers sample are men). More than six in 10 report being in good or excellent health. By comparison, Aegon says, 56% of non-physical workers are women and 44% men. Physical workers have a median age of 37, with 43% younger than 35.

“Only 18% of physical workers are age 55 and older, indicating that as these workers get older, they are either shifting into jobs that are less physically demanding or leaving the workforce,” the survey report says. “Working past age 65, which is traditionally considered retirement age in many countries, is uncommon among physical workers—only 5% are 65 or older. By comparison, non-physical workers have a median age of 44.”

The report goes on to warn that physical workers’ retirement confidence is not substantiated by their objective savings habits.

“The majority of physical workers (64%) are confident about retiring in a lifestyle they consider comfortable,” the report says. “Indeed, physical workers are more likely than non-physical workers to say they are very/extremely confident (31% versus 23%). Over the years, the survey has found that men and younger workers tend to be more confident about achieving a comfortable retirement. The confidence of physical workers reflects the fact that the sample is relatively young and majority male.”

The report notes that physical workers are broadly positive about retirement, with 66% associating this phase of life with positive terms such as leisure (38%), freedom (34%) and enjoyment (28%). However, the report says, many also associate retirement with negative ideas such as ill health (20%), poverty (14%), and being tired (12%).

“In general, physical workers associate more negative words with retirement than non-physical workers,” the report says.

Despite this, overall, physical workers feel more ready for retirement than non-physical workers, according to Aegon. The researchers say retirement confidence results in better engagement with retirement benefits, but it’s also important for these workers to be realistic.

Here the study points to the Aegon Retirement Readiness Index (ARRI), which measures the retirement readiness of individuals based on six different measures. Three measures are based on attitudes (personal responsibility, level of awareness and financial understanding) and three are based on behaviors (retirement planning, financial preparedness and income replacement). The ARRI assesses retirement readiness on a scale of 0 to 10. According to the Aegon researchers, a high score is considered to be between 8 and 10, a medium score between 6 and 7.9, and, a low score being less than 6.

By the numbers, Aegon finds physical workers have an average ARRI score of 6.1, “which is a borderline medium score.”

“They score slightly higher than non-physical workers who have an ARRI score of 5.9, which falls in the low category,” the report says. “Physical workers achieve similar scores to their non-physical counterparts on the attitudinal measures of the index. They score better than their non-physical counterparts on two of the behavioral measures of the ARRI: retirement planning and financial preparedness.”

Weighing down their collective ARRI score, Aegon says, just 35% of physical workers are habitual savers, although a further 27% are occasional savers, meaning they only save from time to time.

“While it is encouraging to see that 62% of physical workers say they are saving on a habitual or occasional basis, greater discipline in the regularity with which people save will help physical workers feel more prepared for their retirement,” the report says.

Aegon’s survey asked respondents what annual gross income they expect to need in retirement as a percentage of their current earnings.

“Just 33% of physical workers are on track to achieve about three-quarters or more of their required retirement income,” the report says. “Only 21% feel they are on course to achieve their full desired income amount. Worryingly, 30% say that they don’t know if they are on course to achieve their retirement income.”

In terms of timing their retirements, Aegon says, physical workers expect to retire at age 65 at the median.

“It is important to consider not just current workers’ visions for exiting the workplace, but also the reality for those already in retirement and how they made these transitions themselves,” the report says. “Among all retirees—including both those in physically demanding jobs and those not—a sobering reality is that 39% retired sooner than they had planned. Of those, 30% stopped working earlier than they planned for reasons of ill health and 26% due to unemployment/job loss.”

Other findings show physical workers are more likely to exercise regularly but less likely to eat healthily, avoid harmful behaviors and less likely to take their health seriously.

“Working in physically demanding jobs takes a toll on a person’s body over the long term, yet only 38% of physical workers say they take their health seriously—for example, by having routine medical check-ups and doing regular self-checks,” the report says.

Helping physical workers be retirement ready

According to Aegon, employers can do more to help their workers across a broad array of measures.

“In terms of measures to help workers prepare for retirement, only 21% of physical workers say their employer offers them annual retirement statements, and 17% are offered an annual retirement plan income forecast,” the report says. “Given that 30% of physical workers say they don’t know if they are on course to achieve their needed retirement income, employers can help workers understand the steps they need to take to achieve their retirement income by providing more information about the retirement plans they offer.”

According to Aegon, retirement plans are not the only way employers can help workers prepare for the future. The survey shows less than half (48%) of physical workers say their employer offers access to good training provisions, potentially putting half of physical workers and their careers in a precarious position should the requirements of their industry shift. Aegon’s report suggests the ability to work to and beyond retirement age can help workers stay economically active for longer, thereby reducing the risk of early drawdown on retirement savings.

The report concludes that employers of both physical and non-physical workers should implement automatic enrollment programs to make it easy for workers to save, and provide for automatic deferral increases.

“Workers who have to leave the workforce earlier than planned due to physical injury or ill health should not have to pay a penalty on early withdrawals from their retirement savings accounts,” the report suggests. “Plans can be tailored to provide maximum credit for shorter lengths of service. In addition, employers should make it easy for physical workers to stay in the workforce as long as possible by providing opportunities to transition into retirement through a reduced work schedule or another position. These arrangements should have no adverse impact on benefits earned prior to the transition to retirement.”

The full report is available for download here.