Workers and Retirees Hold Differing Views on Retirement Income Sources

The Employee Benefit Research Institute's Retirement Confidence Survey revealed workers’ expectations of and retirees’ experiences with workplace plans.  

The retirement income expectations of current workers contrast with the lived experience of retirees, according to data collected by the Employee Benefit Research Institute.   

More than 80% of workers expect their retirement savings plan to be a source of income in retirement, the EBRI 2022 Retirement Confidence Survey shows.

“Retirees are more likely to say that personal retirement savings or investments are a source of income for them [in retirement],” explained Lisa Greenwald, CEO at Greenwald Research, during the EBRI webinar on the survey results “They’re a little more likely to say an IRA [individual retirement account] is a source of income for them.”

The survey was conducted in January 2022, with 2,600 respondents—1,500 workers and 1,100 retirees—age 25 and older.

Among the working respondents, 49% said their retirement savings plan will be a major source of income in retirement, 33% said it will be a minor source and 18% said it will not be a source. As for retirees, 24% expect their workplace retirement savings plan to be a major source of income in retirement, 23% a minor source and 53% not a source.

That data is similar to what the survey found in 2021, when 54% of workers expected their plan to be a major source, 29% a minor source and 17% not a source; and for retirees, 26% expected it to be a minor source, 20% a major source and 54% not a source.  

EBRI also found that 82% of workers and 47% of retirees will rely on their workplace retirement plans to produce income in retirement—second only to Social Security, at 86% of workers and 94% of retirees. Among workers, 70% expect to rely on an individual retirement account to produce income in retirement, whereas 56% of retirees said the same, and 54% of workers expect to rely on a product that guarantees monthly income for life, compared to 34% of retirees.

In 2021, 30% of retirees expected to rely on a product that guaranteed income for life.

Retirees and workers also have different views of their top long-term financial priorities, EBRI found. Among workers, 59% said that saving and investing for retirement is their long-term priority while 36% cited planning for future health and long-term care needs. Among retirees, the priorities are reversed; 48% said their top long-term financial planning priority is planning for future health and long-term care needs and 32% said it is saving and investing for retirement.

“It’s the same list [for long-term priorities] as the top three, but in a slightly different order and with slightly different numbers,” Greenwald said. “Americans’ long-term financial priorities do center on retirement, even though we do know there are competing financial priorities.”

Among workers, 30% cited developing a strategy for drawing income in retirement, compared to 31% of retirees, data shows.

EBRI also found that for workers, 82% will rely on a workplace retirement plan to produce income in retirement versus 47% of retirees. In addition, 75% of workers said personal retirement savings or investments will create income, compared to 67% of retirees.  

The EBRI survey, published last month, also revealed that workers have remained confident despite impacts from the COVID-19 pandemic and periodic variant surges. Workers are also satisfied with their retirement plan overall, the investment options available and tools to help with decumulation, Greenwald said.

The survey releveled that about eight in 10 workers and retirees are satisfied with the tools and resources for determining how much to save for retirement, as well as the tools and resources available to help them with decumulation for determining how to generate a stream of income from their savings in retirement, Greenwald said.

Another section of EBRI’s survey queried respondents on their understanding of common investment options available in retirement plans including managed accounts, target-date funds, and sustainable investments. It found that 66% of respondents said they understood managed accounts somewhat or very well, compared to 60% for target-date funds and 58% for income funds or options. Overall, 50% said they understood sustainable or environmental, social and governance investment options—34% somewhat and 16% very well.  

“[Because] people don’t like to admit they don’t know things, I looked at those who are saying they understand these options very well, and that’s quite low,” Greenwald said. “[It’s] lower than a quarter for all of these line items, and it’s important to call out what’s not on this slide: the one-third to the half of participants who said they didn’t understand these well at all or not too well.”  

EBRI gauged workers’ and retirees’ understanding of managed accounts; 43% responded they understood them somewhat well and 23% very well; for target-date funds, 39% responded somewhat well and 21% very well; and for income funds or options 39% said somewhat well and 19% very well.

EBRI also surveyed worker respondents for how they, as retirement plan participants, evaluate options offered in their plans. The survey found that the top criteria participants use is performance, or growth of the investment option over time, at 32%, followed by how investment options align with their risk tolerance and whether they consider the fee reasonable or appropriate, which were tied at 23%, Greenwald said. Investments that are designed to provide a stream of income in retirement were 11%. 

“ESG was down there at the bottom of the list; only 5% here say they are selecting investments or using evaluation criteria that includes an alignment with [ESG] beliefs or causes,” she said.