Retirement Confidence Has Stalled Out: How to Jumpstart It
Advice for boomers and Gen X'ers to move forward
A smattering of recent surveys point to the same distressing conclusion: Retirement confidence has stalled out in America. That's especially true for boomers and Gen X’ers, exactly when they should be turbocharging their finances to prepare for their next stage of life.
But there are a few things you can do to kick retirement confidence — and your savings— into a new gear.
“It seems like a certain level of malaise is setting in, with a stalling in the retirement confidence rate,” bemoaned Catherine Collinson, president of the Transamerica Center for Retirement Studies (TCRS). “Americans are making progress saving for retirement, but not enough progress. It seems they’re just kind of stuck.”
Retirement Confidence Has Plateaued
Collinson's outfit just unveiled its 17th annual retirement survey of American workers, saying retirement confidence has “plateaued” since 2014. (It has many other intriguing findings that I’ll get to in future posts.)
This year, 62 percent of workers told TCRS they’re confident they’ll be able to fully retire with a comfortable lifestyle. That's roughly the same as in 2015 (59 percent) and 2014 (64 percent). The least confident generation? Not boomers, but the one right behind them: Gen X (ages 38 to 51). Only 56 percent of them are confident.
“And workers are lowering their expectations about how much they think they need to save,” said Collinson. Last year, when TCRS asked them how much they thought they needed to save for a comfortable retirement, the median figure given was $1 million. This year: $500,000.
The boomers’ actual median household retirement savings today, according to the TCRS survey: $147,000. The median age they expect to live to: 85.
Not Adding to 401(k)s
Then there's the Charles Schwab survey, which found that a third of 1,000 401(k) participants it polled have decreased or not added to their 401(k) contributions in the past two years. The Schwab respondents called saving for retirement their leading source of financial stress.
A stunning reason why many told Schwab they aren’t saving more for retirement: They’re not willing to sacrifice things that “add to my quality of life” such as occasional dinners and vacations. Nearly a quarter of boomers (24 percent) and a third of Gen X’ers (30 percent) said that.
The News From Younger Boomers and Parents
Bankrate.com’s latest financial security survey revealed that younger boomers (those age 52 to 61) were saving less for retirement this year than last year, too. Bankrate’s Chief Financial Analyst Greg McBride called this “troubling.” I think he’s being kind.
The younger boomers are "more likely in their peak earning years and should be utilizing higher catch-up contribution limits to get on track for retirement,” McBride noted. (He’s referring to the catch-up rules that allow people 50 and older to invest $6,000 more in their employer-sponsored retirement plans and $1,000 more in their IRAs than those who are younger.)
And a T. Rowe Price survey of parents discovered that more parents have saved for their kids’ college than their own retirement — 58 percent vs. 54 percent. That study also heard 76 percent of parents say they’d be willing to delay retirement to pay for their kids’ college education.
Eye-Popping Retiree Health Costs
Making matters worse, according to new figures from Fidelity, health care costs for couples in retirement are 6 percent higher than a year ago.
A 65-year-old couple retiring in 2016 will need an estimated $260,000 to cover health care costs in retirement, Fidelity says. They’d need another $130,000 for long-term care expenses. (Fidelity assumes that couple would buy a long-term care insurance policy, which very few people do, as I recently wrote.)
Using Retirement Plans for Other Purposes
I hate to berate my boomer generation, but even those of us who are saving through 401(k) and similar employer-sponsored plans haven’t been doing it very well lately. In particular, many are using the money for reasons other than retirement.
T. Rowe Price’s survey of parents revealed that 27 percent of employees with its retirement accounts at work are doing so to save for college, not for retirement.
And the percentage of 401(k) participants in their 50s and 60s extracting money from their plans through 401(k) loans while working has been on the rise. The recent T. Rowe Price Reference Point study saw steady increases since 2013 in the percentages of those employees with such loans. The dollar amounts have risen, too. For instance, 27.3 percent of those age 50 to 59 surveyed have 401(k) loans, up from 26.6 percent in 2013. Their average loan balance: $10,780.
A Concern: Gen X's 401(k) Loans
Judith Ward, senior financial planner and vice president of T. Rowe Price Investment Services, isn’t alarmed about the 401(k) loan results for boomers, though.
“What’s important to look at is the amount of the loan compared to the overall balance. For people over 50, that ratio is less than 10 percent of the 401(k) balance,” said Ward. “Where we are concerned is in the Generation X group. More of them are taking loans, and their balance ratio is much higher.”
Ward also told me that “there might be times where taking a 401(k) loan is the best way to go if you’re going into debt anyway,” because the interest rate might be lower than a bank’s and you’re paying yourself back. Also, she added, “many companies now let you continue contributing to 401(k)s while you have 401(k) loans.”
And, Ward noted, at some companies now, employees who leave their firms with outstanding 401(k)s are not required to repay the money immediately. Instead, the businesses are “allowing the loans to be repaid through an automatic payment service, which keeps the loan payment on schedule.”
What Boomers Could Do
Collinson told me she was pleased to see in the TCRS survey that boomers saving through 401(k)s are putting away 10 percent of pay, on average; 34 percent of them are saving more than 10 percent. “That’s fantastic. It would be even more fantastic if they were calculating their savings needs to determine if that amount was adequate.” Few have used retirement calculators.
Collinson offers boomers two more suggestions that could make them more confident about retirement:
First, learn more about the rules for claiming Social Security. Only 48 percent of boomers told TCRS they had either “a great deal” or “quite a bit” of understanding about Social Security benefits.
“Given that so many boomers expect to have Social Security as a form of retirement income and even their primary form of retirement income, it is extremely important they learn about their benefits,” Collinson said. “There are so many different angles and actions to determine when and how to claim Social Security. It’s imperative to become knowledgeable. It could mean a huge difference in your long-term retirement income.”
Two places to bone up: The Social Security Administration's website and the newly updated bestseller, Get What’s Yours: The Revised Secrets to Maxing Out Social Security by Laurence Kotlikoff, Philip Moeller and Paul Solman.
What's Your Plan B?
Collinson’s second tip for boomers: Come up with a Plan B in case you wind up having to retire unexpectedly due to a job loss or your health. Only 25 percent of boomer workers have one, according to the TCRS survey. But in a 2015 TCRS survey, 60 percent of retirees said they retired sooner than they expected — mostly because they were laid off.
“So many boomers [66 percent] told us in the new survey that they are planning to work past 65 or do not plan to retire,” said Collinson. “But that requires them to be able to work and that their skills are marketable. Many are not doing enough to achieve that vision.”
Here's the proof: Only 56 percent of boomers TCRS surveyed said they are “performing well at my current job.” Forty percent are “keeping my job skills up to date.” Fifteen percent are “scoping out the employment market and opportunities available,” 14 percent are networking and 5 percent are “going back to school and learning new skills.”
Although 67 percent of boomers told TCRS that they are “staying healthy so I can continue working,” Collinson wasn't ebullient about the finding. “I’d like to see that closer to 100 percent,” she said.