Workers Still Not Saving Enough

April 5, 2004 ( - More than half (58%) of American workers say they are saving for retirement, but with 45% reporting total household assets of less than $25,000 more needs to be done to encourage savings on a larger scale.

Despite plan sponsor efforts to educate their workforce about saving for retirement, 2004’s figure shows a dwindling percentage of the workforce chipping into their retirement accounts compared to 62% of workers saving for retirement in 2003 and 61% in 2002 and 2001. This figure though seems to be more of a reflection of poor education efforts by employers than it does lack of initiative by participants, according to findings from the 14th annual Retirement Confidence Survey (RCS) complied by the Employee Benefits Research Institute (EBRI), American Savings Education Council (ASEC) and Mathew Greenwald & Associates.

Plan sponsors may be quick to point to a lagging economy as the impetus for sluggish retirement savings, however, examining the results of the most recent release of data, Dallas Salisbury, president and CEO of EBRI finds, “on the 14 years that we have done the RCS, the aggregate level of worker confidence in having enough money to retire comfortably seems to remain unrelated to whatever economic conditions exist.”

Pointing to this year’s results, Salisbury says confidence figures show participants seem unphased by a three-year economic slump. “This year, one-quarter (24%) of workers are very confident and more than four in 10 (44%) are somewhat confident.”

Convincing to Save

Plan sponsors may have their work cut out for them when it comes to convincing participants to save for retirement rather than live for the now. “Overcoming the growing and constant drumbeat of ways and reasons to go into debt, including the new home purchase section ads that present the house price as a monthly payment with no reference to interest expense or total cost, makes the educational challenge greater with each passing day,” Salisbury said. “A debt-financed ownership society will not allow Americans to retire. That takes real savings.”

Further, participants seem to live in a state of naivety about where retirement dollars come from. “Almost half of workers (47%) who have not saved for retirement are at least somewhat confident about having enough money in retirement, with expectations that their retirement money will inevitably come from somewhere. America appears to be a nation of optimists when it comes to retirement, but for some people the retirement dream may turn into a nightmare,” says Salisbury.

The reason for the optimism can be found in an amalgamation of longer expected work lives, lowered retirement standard of living expectations and an unreal expectation of what employers will provide. More than half of workers (54%) expect to work to age 65 or older, andalmost seven in 10 (68%) plan to work in retirement, however, the average retiree retired at age 62. In addition, the 2004 RCS finds that four in 10 retirees (37%) left the work force earlier than planned, as many cited negative/unexpected reasons for retiring early such as healthproblems or disability (35%) or changes in their company such as downsizing or closure (28%).

The problem becomes even more magnified when overlayed with the low expectations workers have once they enter retirement. Citing financial experts, the RCS says retirees will need at least 70% to 80% of their preretirement income to live comfortably in retirement, however 38% of workers think they will need less than 70% of theirpreretirement income to live comfortably in retirement. Even more revealing is that nearly half (45%) of current retirees say their current income is lower than their preretirement income.

Despite the obvious gap in what they are making now and what they can expect, most workers do not expect their standard of living to change in retirement. About two-thirds (64%) of workers believe that they will be at least as comfortable in the years immediately following retirement asthey were before retirement and 59% do not expect their standard of living to decline as they age during retirement.

All of this is compounded by the expectation workers have that their employer will provide for them. “Workers may be overestimating the likelihood of receiving some retirement benefits from their employer,” said Mathew Greenwald, president of Mathew Greenwald & Associates. Even if they are not overestimating their employer’s contribution, 21% of workers say their employer should be asked to pay a greater share. However, Greenwald points out “employers have cut back substantially on the provision of defined benefit pension plans and retiree medical benefits, yet even younger workers are just as likely to expect to receive these benefits as current retirees are to have them.”

Not only do workers expect a share of their retirement to come from their employer, but the government as well. Thirty percent of workers feel the government should pay for a greater share. Overall, only 7% of workers indicate the individual should pay a greater share.

Even putting unrealistic government and employer expectations aside, most workers do not know when they will be eligible for Social Security retirement benefits. Fifty-four percent of workers believe they will be eligible to receive full benefits earlier than the law permits, and 6% think later, with only 19% of workers able to correctly answer when they will be eligible to receive social security benefits.

Thus, the study finds plan sponsors need to be doing more to not only get workers to participate retirement savings, but also to realize what steps are necessary now to provide for a comfortable retirement, and the way to do this may require plan sponsors to retool their current education methods. The latest version of RCS data shows even with all the computer technology and Internet information now available to consumers, most who receive education through an employer say they found personalized, one-on-one, and print communication most helpful. As evidence of this contention, the study finds fewer workers report using online investment advice services (24%), other online services (21%), software programs (13%) or videos and CD-ROMS (12%) compared to the number of workers that responded to utilizing retirement benefit statements (80%), brochures (63%), newsletters/magazines (53%), seminars or group meetings (43%) and individual access to a financial planner (41%).

This information though does little good if workers are not getting the message, which apparently most of them are not. The 2004 RCS finds retirement education in the workplace reaches only a minority as only one-third of workers (55% of plan participants) report receiving retirement educational materials or seminars from an employer or work-related retirement plan provider in the past 12 months, down from 47% in 2003.

Leading the Charge

As the old saying goes, you can lead a horse to water but you cannot make him drink, which appears to be the case of participant education and retirement savings. Even though plan sponsors are providing education and participants respond favorably to the materials, they are still only being utilized by a minority of workers, especially specific investment advice. Of the 43% of workers offered investment advice through their employer who say they requested and received investment advice for retirement purposes: 9% implemented all the recommendations; 67% implemented some of the recommendations; and 24% implemented none of the recommendations.

Not surprisingly then, workers are not actually putting pencil to paper to determine what they will need in retirement. "Only 42% of workers report that they and/or their spouse have tried to calculate how much money they will need to save by the time they retire to live comfortably," said Don Blandin, president of ASEC.

Yet, "the survey finds that doing a savings need calculation appears to be effective in prompting people to make changes in their financial behavior," Blandin says. As evidence of this point, the report shows 43% of workers who did a retirement needs calculation made changes in their retirement planning as a result:

  • 57% started saving more
  • 19% changed the allocation of their money
  • 13% researched other methods to save for retirement
  • 2% lowered their debt
  • 1% started saving for the first time.

The survey was conducted in January 2004 through 20-minute telephone interviews with 1,002 individuals (783 workers and 219 retirees) age 25 and older in the United States. Data for the 2004 survey was funded by grants from 20 public and private organizations, with staff time donated by EBRI, ASEC, and Greenwald. A copy of the full 2004 Retirement Confidence Survey, as published in the April 2004 EBRI Issue Brief can be downloaded at