Retirement Planning Should Consider the Unexpected

Retirement expectations of current workers do not match the reality of current retirees, according to EBRI’s latest Retirement Confidence Survey.

Sixteen percent of workers in the 2015 Retirement Confidence Survey (RCS) from the Employee Benefit Research Institute (EBRI) say the age at which they expect to retire has changed in the past year, and of those, the large majority (81%) report their expected retirement age has increased.

Just 9% of workers say they plan to retire before age 60, compared with 36% of retirees who report they retired that early. Sixteen percent of workers plan to retire between the ages of 60 and 64, although 29% of retirees retired in that age range. More than one-quarter (26%) of workers plan to wait (compared with 6% of retirees who actually waited) at least until age 70 to retire, and 10% of workers indicate they will never retire.

Luke Vandermillen, vice president of retirement and investor services at The Principal, a co-sponsor of the survey, notes that workers and retirees responding to the survey say they spend little time doing retirement planning—less than they spend planning for the holidays. “This leads to misconceptions,” he tells PLANSPONSOR. “Workers think if they don’t have enough money to retire, they will just work longer or work in retirement, but sometimes people can’t retire on their own terms because of health issues or company downsizing.”

The RCS has consistently found that a large percentage of retirees leave the work force earlier than planned (50% in 2015). Many retirees who retired earlier than planned cite hardships for leaving the work force when they did, including health problems or disability (60%), changes at their company, such as downsizing or closure (27%), and having to care for a spouse or another family member (22%).

In another expectations gap, the RCS has consistently found that workers are far more likely to expect to work for pay in retirement than retirees are to have actually worked. The percentage of workers planning to work for pay in retirement now stands at 67%, compared with just 23% of retirees who report they work for pay in retirement.

Vandermillen says plan sponsors and advisers can help employees mitigate dashed retirement expectations by focusing more on retirement outcomes. This includes thoughtful plan design and tools to track retirement readiness (see “Moving the Needle on Retirement Confidence”).

According to the RCS, many workers continue to be unaware of how much they need to save for retirement. Less than half (48%) of workers report they and/or their spouse have ever tried to calculate how much money they will need to have saved so that they can live comfortably in retirement.

While the majority of retirees (90%) report that Social Security provides a source of income for them and their spouse (63% say it is a major source of income), workers and their spouses continue to expect to draw their retirement income from a wide variety of sources. Eighty percent of current workers expect Social Security to be a major or minor source of income in retirement, but they believe that personal savings will also play a large role.

At least two-thirds each say they anticipate receiving retirement income from an employer-sponsored retirement savings plan (74%), an IRA (69%), and other personal savings and investments (66%). Seventy-three percent expect employment to provide them with a source of income in retirement, and 55% expect to receive income from an employer-sponsored traditional pension or cash balance plan. The RCS report notes that only 32% report that they and/or their spouse currently have an employer-sponsored traditional pension or cash balance plan with a current or previous employer.

The reason workers may be less likely to expect than retirees are to receive income from Social Security is confidence in Social Security’s ability to maintain the current value of benefits paid to retirees is low. Just 9% of workers are very confident that the Social Security system will continue to provide benefits of at least equal value to the benefits received by retirees today, and 26% are somewhat confident.

All in all, more than half (56%) of workers expect to be able to manage in retirement with no more than 70% of their preretirement income. Another 23% expect to be able to manage with 70% to 85% of preretirement income. Fifty-seven percent of retirees say their income in retirement is no more than 70% of their preretirement income, and 12% say it is 70% to 85%.

Compared with what they expected when they first retired, retirees are more likely to say their expenses in retirement are higher than expected (37%) rather than lower (24%). Thirty-five percent report their expenses are about the same as expected.

“Being able to control all variables is something people need to think about—spend a few more minutes planning and it will produce better outcomes,” Vandermillen says.

According to the RCS, workers express a moderate level of interest in purchasing an insurance product when they retire that begins providing guaranteed monthly income at some point in the future, such as age 80 or 85. Eight percent of workers indicate they are very interested, and 30% report they are somewhat interested.

Vandermillen thinks the reason more workers are not interested in guaranteed income products is mostly an education issue. He says first, the efforts The Principal and other providers have made to show retirement plan participants how their account balances translate to income in retirement needs to continue. In addition, workers may have heard about guaranteed income products, but don’t understand them. “They need to not only know how much they need in retirement, but how they can receive it,” he states.

The 2015 RCS report is available at