Survey: Americans Need More For Retirement

August 12, 2003 ( -Having just suffered three years of apparent bear battering in the market, less of half of Americans (47%) are either somewhat or very confident that they will have saved enough for retirement, with retirement account balances showing a long road ahead.

Only one-fourth of working Americans saving for retirement report being “very confident” in their ability to plan and prepare for retirement, compared with 53% that are “somewhat confident” and 19% that are “concerned.” Forced to look at the numbers though, there is an overall feeling of concern that they would have enough for retirement with 33% saying they were “somewhat concerned” and 20% being “very concerned,” according to the Merrill Lynch Retirement Preparedness Survey.

However, when the lack of confidence dust cleared, participant accounts were apparently not that shaken up after three years of market losses. The majority of retirement plan participants (52%) said the market’s decline on their net eggs was either “only a little” (19%) or “not at all” (33%). Otherwise the impact was felt “somewhat” for 29% and “a great deal” for the remaining 19%.

This may have left many participants of both defined contribution (DC) and non-DC plans undeterred, with 85% of DC participants and 47% of non-defined contribution plan reporting no change in their contributions. Only 10% of DC participants and 32% of non-DC participants have reduced contributions and 3% of DC and 21% of non-DC participants have stopped contributions all together.

Retirement Priority

Continued participation provides evidence that saving for retirement is a key financial priority for Americans. In fact, Americans by far rate saving for retirement as their primary reason for investing (67%), followed by:

  • 15% – family (college, education, etc.)
  • 7% – do not invest
  • 5% – other
  • 4% – emergency.

Not surprisingly, the amount being set aside has a direct impact on the annual salary. Whereas only 15% of the survey’s respondents said they are setting nothing aside, that number jumps up to more than half (52%) of those participants bringing in less than $25,000 per year. Conversely, among employees that earn more than $100,000 annually, only 3% are not saving anything.

Even though contribution amounts have not changed, and participants rate saving for retirement high on the priority totem pole, the majority of Americans perhaps are not saving enough. Participants on average are setting aside 10% of their annual income, with the biggest savers among the $100,000 and up annual earners, who are stashing away 20% of their annual income on average. After this savings rates decline with income levels:

  • $90,000 to $50,000 – 12%
  • $49,000 to $25,000 – 10%
  • under $25,000 – 0%

But with three out of four participants seeing retirement as a time to take it easy, relax and travel, participants are going to need to start setting away a lot more. The average DC participant reported having only $60,000 for retirement, compared with only $27,000 for non-participants. Overall, Merrill Lynch found the median reported value of all household retirement savings is only $40,000, with a quarter of respondents saying they have no retirement account at all. According to Merrill Lynch though, the numbers may fall short, with the firm estimating individuals should count on having 70% of their pre-retirement annual income per year in retirement.

“The results of our survey illustrates that Americans are shockingly ill-prepared when it comes to planning and saving for retirement,” said Cynthia Hayes, First Vice President, Employer Plan Management for the Merrill Lynch Retirement Group. “The financial challenge facing Baby Boomers as they look towards 2011 is enormous. (2011 being the year that the first Baby Boomers reach retirement age 65.)”

Looking back five years, the latest results stand in contrast to 1998, when Merrill Lynch found that 90% of Americans believed they would be ready for retirement and a substantial number believed they would be able to retire before age 62.

“We know that Americans have traditionally under-saved for retirement, but these 2003 survey results serve as a wake-up call – for plan sponsors, individual investors and financial services providers,” said Hayes.

This apparently does not mean retirement will have to wait for the majority of Americans (77%), who have not delayed their expected retirement age. Of those that have pushed the golden years back - 23% of the total - the majority (34%) are themselves close to retirement, falling in the 60 to 69 age range. The remaining group that is planning on postponing retirement fall between:

  • 27% - age 45-59
  • 23% - age 35-44
  • 16% - age 25-34.

Overall though, nearly seven out of 10 respondents (69%) are still counting on cutting out of work at 65 or younger, a number that rose slightly from 65% expecting the same in 2002. Not surprisingly, this targeted retirement age has a direct correlation with income, as 73% of those making more than $100,000 annually expecting retirement at 65 or sooner, compared with just 61% at the other end of the scale (those under $25,000 annually).

Educating the Masses

Participants appear to be a bit dumbfounded about how they could have been blindsided by the impending rush of retirement. While 85% of the survey respondents say that retirement is a key financial priority now, seven out 10 said they wish they had started sooner, with 59% wishing they had known about retirement savings plans such as a 401(k) sooner.

Hayes notes this points to a two-fold problem that needs to be solved - a lack of basic investment knowledge and a lack of financial advice and planning. "For the second year in a row, we were alarmed to discover that over half of the Americans surveyed believe that 401(k) accounts are guaranteed by law. No such guarantee exists," she said.

Further, the survey found that advice and planning provides results, with 63% of respondents with a financial plan say they are confident that they will have saved enough to retire versus 38% of those without a plan. In addition, having a financial advisor makes a significant difference in savings. Respondents with a financial advisor have total retirement plan assets about equal to their median household income versus only half of their income for those without an advisor.

The Merrill Lynch Retirement Preparedness Survey is an independent study based on a telephone survey of 1,000 individuals aged 25 to 65 with an additional sample of 100 consumers 60 to 69 years old. Maximum sampling error is +/- 3 percentage points at a 95% confidence level.