Americans do appear to have a fair understanding of certain personal finance concepts, and both workers and retirees agreed that they place a high degree of importance on taking key steps to save and plan for retirement, according to findings of the Voya Retire Ready Index. However, when asked to identify the financial planning activities they had already taken, only a minority reported completing some of the primary measures that can lead to improved retirement outcomes.
A majority of workers and retirees indicated it was extremely or very important to create a holistic financial plan (87% of workers and 73% of retirees) and determine the amount of future monthly income their current savings would produce (85% and 71%). Yet, only 31% of workers and 35% of retirees have a written budget, only 36% of workers and 31% of retirees have used a web-based retirement calculator and only 17% of workers and 26% of retirees have a formal written financial plan.
In addition to doing too little planning, workers and retirees are also not saving enough and may not have enough financial protection, the study found. Nearly half of workers (48%) and more than one-in-five retirees (21%) reported having less than $49,000 in total savings and investments. Approximately one-in-ten from both groups were not even sure how much they currently had in total savings and investments.
Lower levels of savings translated into higher concerns about covering their expenses in retirement. More than one-quarter of retirees (27%) and nearly six-in-ten (59%) workers were extremely or very concerned about outliving their savings. Workers expressed similarly high concerns about being unable to pay for their health care expenses (61%) and being a burden on their family members (51%).
The Voya Retire Ready Index was designed on the premise that successful retirement preparation involves three important components: 1) sufficient knowledge and awareness of how to prepare (“knowing”); 2) accurate and comprehensive planning activity (“planning”); and 3) adequate savings to generate sufficient income replacement (“having”). The study incorporated two surveys that were conducted with Greenwald & Associates, Inc. The surveys asked current workers (the “Workers”) and recent retirees (the “Retirees”) a series of questions related to these three retirement readiness components. Using the survey results, scores were calculated on a scale from zero to ten in each category, and then again on an overall basis to come up with a combined score.
The findings show how Americans are generally behind in their readiness, and that planning represents their most significant hurdle as well as the area with the most opportunity for improvement. Workers who were surveyed for the Voya Retire Ready Index averaged an overall score of 4.1 out of ten, while retirees averaged a 5.5.
Despite scoring in the low to middle range on the Voya Retire Ready Index, both workers and retirees reported a high level of confidence in their financial preparedness to live securely throughout retirement. The study pointed to some gaps between the current perceptions many had about their retirement security and what they ultimately might experience. This included how long they expect to live in retirement and how long they expect the income from their personal assets to last.
Nearly two-thirds of workers (65%) and eight-in-ten retirees (82%) reported feeling at least somewhat confident in their ability to live securely throughout retirement. However, nearly six-in-ten workers (59%) were extremely or very concerned about outliving their savings. And while almost two-thirds (65%) of retirees expected to live more than 20 years in retirement, only four-in-ten (40%) believed their savings would last beyond 20 years.
The Voya Retire Ready Index report is here.