Retirement Confidence Based on Shaky Assumptions?

April 11, 2003 ( - Workers' confidence in their ability to live comfortably in retirement appears unshaken by slumping markets and a soft economy - but that confidence may not be based on good assumptions.

Actually, it may not be based on assumptions of any kind.    Sixty-one percent of workers have made no attempt to determine how much they need to save for retirement.    Among those who have done a calculation, 36% say they do not know, or do not remember, the results of that calculation.   Two-thirds did that calculation more than a year ago and, according to the 13th annual Retirement Confidence Survey, many of those who have done the calculation used “less-than-reliable” methods such as guessing or estimating a figure based on inflation or the state of the economy.  

The Employee Benefits Research Institute (EBRI), a public policy research group in Washington, in conjunction with the American Savings Education Council and Matthew Greenwald and Associates, conducted the survey and report.

Despite those shortcomings, the number of survey respondents who felt “very” confident about having enough money to live on comfortably in retirement has remained relatively consistent over the past several years; 21% in 2003 (see    EBRI: Uncertain Times Leave Participants Less Sure ), 23% a year ago, 22% in 2001 – and 20% in 1994.  

Some of this confidence might be explained by the fact that nearly half (48%) of workers surveyed say they have no stocks or stock mutual funds either inside or outside a retirement savings plan, and may have been spared some of the impact of the slumping investment markets.    Still, EBRI CEO and President Dallas Salisbury cautions in a press release “the percentage of those not at all confident is 16% in 2003 versus 6% in 1993.”   That figure was just 10% as recently as last year (see  Workers Confident But Unprepared for Retirement ).

There are other assumptions apparently in place that could serve to distort these worker perceptions.    Seventy percent plan to work after retirement, for one thing, although only 26% of current retirees have actually done so, according to Matthew Greenwald, president of Greenwald Associates.    Nearly 24% of those age 45 and older now say they plan to postpone retirement, compared with 15% a year ago - yet four in 10 current retirees have retired earlier than they had planned, half due to an unexpected health problem or disability, and 23% as a result of unexpected changes at their company, such as downsizings or closures.    

Additionally, half of the respondents say they will be able to live comfortably on 70% or less of their current income in retirement (39% say they could live comfortably on less than 60%).    Most financial experts predict that workers will need at least 70% to 80%.  

Most have also overlooked what might be a major retirement expense - health care.   The vast majority (79%) have given little or no thought to the need for long-term care for nursing home or home health care.   More than half (56%) have not considered the need for general health insurance coverage.

Savings Steps

On the other hand, 40% of those who have taken a stab at a savings assessment have made changes as a result.   More than half (58%) began saving more, and 26% changed the current investment allocation of their retirement funds.

The survey's authors note that workers who save $20/week for 25 years at a 5% rate of return, would have over $50,000 saved at the end of that period.

The survey was based on January phone interviews with 1,000 people age 25 and older, including 782 workers and 218 retirees. The survey is online at .