Retirement Readiness Low Among Young and Low-Income

A study highlights Americans’ need to focus on retirement planning and for additional resources for saving.

The Federal Reserve Board’s latest survey of the financial and economic conditions of American households finds, in general, many individuals want to save for retirement, but also many individuals—especially those with lower incomes—are failing to do so.

Additionally, even among those who are saving for retirement, a majority of respondents indicate that they have no or limited confidence in their ability to manage their retirement investments.

Lack of Planning 

According to the 2014 “Survey of Household Economics and Decisionmaking,” only 13% of respondents who are not currently retired report that they have given “a lot” of thought to financial planning for their retirement, while an additional 21% have given it “a fair amount” of thought. Thirty-nine percent of respondents say that they have thought only “a little” or “none at all” about financial planning for retirement.

The proportion of those ages 18 to 29 who say they have given no thought at all to retirement planning was the highest of any age group, at 31%. In addition, among those households with less than $40,000 in income, nearly 29% say they have given no thought at all to retirement planning.

Individuals also express a range of expectations for their path to retirement. Among those who have not yet retired and do not indicate that they are out of work due to a disability, only 22% anticipate they will experience the traditional notion of retirement, which is working full time until a retirement date and then no longer working at all. Conversely, for 26% of this population, their “retirement plan” is to keep working as long as possible. An additional 12% indicate they do not plan to retire.

Fifty-five percent of those with a household income less than $40,000 per year—who are not retired and not out of the labor market due to a disability—indicate that they either plan to keep working as long as possible or do not plan to retire. Only 27% of the parallel group making $100,000 or more say the same.

NEXT: Lack of Planning Not the Only Problem

Lack of Resources and Confidence 

A lack of preparedness for retirement is not signaled by a lack of planning alone. Many respondents, particularly those with limited incomes, indicate that they simply have few or no financial resources available for retirement. When asked what types of retirement savings or pension they have, 31% of non-retired respondents report that they have no retirement savings or pension whatsoever.

Eighty-two percent of respondents making more than $100,000 per year report having at least some retirement savings, and 74% of those making between $40,000 and $100,000 per year have savings. But among respondents making less than $40,000 per year, only 42% have any retirement savings.

Many respondents also express a lack of knowledge about both the amount they are contributing to their retirement plan and the level of the 401(k) match provided by their employer. Twenty-three percent of respondents who have a 401(k) retirement account say they do not know what portion of their salary they contribute. Additionally, 41% of respondents whose employer offers a plan say they do not know the maximum fraction of their salary that their employer will match. This includes 73% of those who do not have savings in a 401(k) type account, but also 30% of those who do.

A number of respondents also indicate that they lack confidence in their ability to manage their investments. Just more than half of respondents with self-directed retirement accounts—including 401(k)s, individual retirement accounts (IRAs), and savings outside retirement accounts—are either “not confident” or only “slightly confident” in their ability to make the right investment decisions when investing money in these accounts.

Even when respondents do have established retirement savings accounts, a subset of non-retired respondents report drawing on these resources. Six percent of those with retirement savings report that they borrowed money from a retirement account during the year before the survey. Additionally, 5% of those with such accounts report that they cashed out, or permanently withdrew, some of their retirement savings in the prior 12 months; 1% indicate that they both borrowed money from and cashed out retirement accounts in that time. Additionally, 6% of non-retirees without retirement savings say that they borrowed from and/or cashed out their retirement savings, reflecting that some individuals previously had savings but have depleted the funds in those accounts.

NEXT: Comparing Expectations with Experience

Expected vs. Actual Retirement Income 

There are differences by age in the sources of funds that respondents expect to use to pay for retirement expenses. This is especially apparent with respect to Social Security. Only 44% of those younger than 30 say they anticipate Social Security benefits will be part of their plan to pay for expenses in retirement. This percentage steadily increases by age cohort, up to 92% for those older than 60. Similarly, traditional defined benefit (DB) pension plans are less common as an expected source of retirement funding among younger respondents. Thirty-six percent of those ages 60 and older are counting on income from a defined benefit plan, while only 22% of those ages 18 to 29 say the same.

Many respondents expect continued employment to be a significant source of retirement income, with 45% of all respondents expecting to continue working in some capacity to cover their expenses and 26% expecting their spouse to continue working. Forty-six percent of respondents plan to rely on savings they hold outside formal retirement accounts to cover their expenses, while 37% plan to draw on savings in an IRA, and 20% expect to sell or rent land or real estate to pay for retirement expenses.

Among current retirees, the common age to retire is 62, with 20% of retirees saying they stopped work at that age, followed by age 65, when 11% stopped working. Eighty-one percent of current retirees report that they had stopped working by age 65. In contrast, among non-retirees who plan to retire and provided an expected retirement age, only 56% expect to retire by age 65, whereas 28% plan to work to age 70 or later. More than half of current retirees (51%) say they followed the traditional model of working full-time until they retired, and then stopped working altogether.

When it comes to sources of funds in retirement, 89% of those in retirement are drawing Social Security benefits, and 62% are drawing a traditional defined benefit pension. Half draw on savings outside a retirement account, 45% use savings from an IRA, and nearly one-third draw on a defined contribution (DC) plan. Twelve percent use income from real estate or the sale of real estate to fund expenses in retirement, and 8% currently earn wages from a job. Only 4% indicate they are relying on children, grandchildren or other family members to pay for their expenses.

The survey was conducted on behalf of the Federal Reserve Board in October and November 2014. More than 5,800 respondents completed the survey. The report summarizing the survey's key findings may be found at