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Retirement Crisis: Are We There Yet?

The answer, say new studies, depends on if you're still working

By Richard Eisenberg

A flurry of studies out in recent days reveal a dramatic split between pre-retirees (nervous, not planning enough, eager for help from their employers) and the retired (things are fabulous for us, mostly).

“It’s a story of two retirements,” said Marcy Keckler, vice president of financial advice strategy at Ameriprise, whose firm released the research report Pay Yourself in Retirement: How Retirees and Pre-Retirees Plan Their Retirement Income, based on its poll of 1,300 Americans between age 55 and 75 with at least $100,000 of investable assets.

She was referring, in particular, to Ameriprise’s finding that 71 percent of current retirees rely on pension funds (funded by their former employers and providing fixed, guaranteed monthly income), while 75 percent of pre-retirees plan to rely on 401(k)s, whose size depends on how much they put in and which typically don’t pay out in regular monthly installments in retirement.

New Challenges Facing Boomers Nearing Retirement

“The next wave of retirees will need to be in charge of facing a number of challenges that the earliest wave of boomer retirees didn’t,” said Keckler.

She added: “They need to be in charge of their own investment diversification strategy. And they will face a tax challenge. If they have money in a 401(k), an IRA and regular investment accounts or a Roth IRA, taking money from one has different tax impacts than money pulled from another. Also, they will need to think about what would be a sustainable withdrawal rate.” (The last means: how much money to take out to live on each year.)

Let me tell you more about what the Ameriprise research, and new studies from BlackRock, Willis Towers Watson, the Transamerica Center for Retirement Studies, the National Institute on Retirement Security (NIRS) and Financial Engines discovered about pre-retirees and retirees and what experts say about that.

The Pre-Retirees

For workers nearing retirement, the surveys say…

They’re gloomy about their retirement prospects, according to the 2015 Global Benefits Attitudes Survey by Willis Towers Watson. Specifically, 76 percent of 5,083 U.S. employees said, “My generation is likely to be much worse off in retirement than my parents’ generation are/were;” 71 percent said, “When I come to retire, Social Security will be much less generous than it is now” and 70 percent said, "When I come to retire, the medical benefits provided by the government will be worse."

Women are caught in a 401(k) trap and are, in general, less confident about their retirement prospects than men. The NIRS study, Shortchanged in Retirement, The Continuing Challenges to Women’s Financial Future, said that women are now somewhat more likely than men to work for employers offering retirement plans, but a gap in eligibility limits their participation in them. “Women’s higher rates of part-time employment and shorter job tenure may make it more difficult to meet employers’ eligibility requirements for retirement plans compared to men,” the NIRS study said.

This may partly explain why Transamerica noted that women are more pessimistic about their retirement prospects than men. In Sixteen Facts About Women’s Retirement Outlook, based on findings from its annual retirement survey of American workers, Transamerica said 28 percent of women work part-time, compared to 13 percent of men.

Also, said Transamerica, 46 percent of women are “not too confident’ or “not at all confident” in their ability to retire with a comfortable lifestyle, compared to just 36 percent of men.

Roughly half (48 percent) of pre-retirees haven’t devised a retirement income plan, said Ameriprise. In other words, they may have savings but don’t know what the money will translate to in monthly income. And they haven’t estimated how much they’ll get from Social Security or other income sources, nor how much money to withdraw from savings annually or which accounts to tap first.

Fifty-seven percent of full-time workers described as “struggling” don’t expect to retire until age 70 or later, according to Willis Towers Watson. By contrast, only 15 percent who aren’t worried about their financial situation expect to work that long; 40 percent of them expect to retire before 65.

Pre-retirees wish their employers did more to help them prepare for retirement (and did more than their employers think they do). That’s based on BlackRock’s Defined Contribution Pulse Survey of 1,003 participants in defined contribution plans — 401(k)s and such — and 200 plan sponsors. It found that 55 percent of workers (and 47 percent of boomer workers) said their employers should provide more support.

An overwhelming majority of workers (73 percent) pleaded for assistance with help “in turning my retirement savings into a regular retirement income stream.” Only 31 percent said they felt informed about how to generate income from their retirement savings.

But, get this: 94 percent of plan sponsors believed their participants were informed about how to generate income from their retirement savings. And 89 percent thought the employees were determining how much retirement income their savings can generate. The reality, according to BlackRock: only 11 percent of workers said they had determined how to generate income from their retirement savings.

Similarly, 64 percent of plan sponsors believe their employees know how much to save for retirement but only 37 percent of employees say they do.

“There’s a very big disconnect between what plan sponsors think participants know and what participants say they know,” said Anne Ackerley, managing director and head of BlackRock’s U.S. and Canada Defined Contribution Group.


The plan sponsors, however, seem to realize they need to step up here: 69 percent said “there is a growing need for defined contribution plans to provide retirement income solutions or services.”

I’d love to see evidence that they soon answer the call.

Many pre-retirees lack confidence about saving for retirement and are making serious mistakes. BlackRock’s survey said only 11 percent of workers called themselves “confident” about the investing they do through their employer-sponsored retirement plan; 48 percent lacked a strong understanding of how to invest their retirement savings and roughly the same number wanted more guidance from their employers on investing appropriately for retirement.

Financial Engines, a firm that offers retirement-planning advice to employees, just produced a report showing that many 401(k) participants are misusing their plans’ target-date funds.

The report, Not So Simple, Why Target-Date Funds Are Widely Misused by Retirement Investors (based on a survey of more than 1,000 employees with access to such funds in their plans) said 64 percent of the target-date fund investors held only a portion of their plan’s investments in the funds. Those employees are ignoring the “set it and forget it” premise of target-date funds, whose managers handle asset allocation decisions for investors, making their holdings more conservative as employees near retirement.

“Most participants don’t ‘forget it’ — they are actively investing away from the target-date fund in their portfolios,” said Christopher Jones, chief investment officer of Financial Engines. Why? Many think they can beat the market on their own. But, Financial Engines’ research shows, a “partial target-date fund” approach can result in 2.11 percent lower median annual returns than holding all or almost all of your retirement assets in target-date funds.

Only 38 percent of pre-retirees, Ameriprise said, have figured out which of their investments to tap first in retirement. That could lead them to pay higher tax bills than necessary.

The Retired

For Americans in retirement, the surveys say…

85 percent have a retirement-income plan, according to Ameriprise. And things are working out well for them. “That was a pleasant surprise,” said Keckler. “To me, that’s testament to the power of having a plan and thinking it through and getting professional help if you need it.”

According to the Ameriprise report: 86 percent of retirees said the money they had available was exactly the amount or even more than they were anticipating. They were pleasantly surprised about this, too.

“Some are choosing to live a little larger in retirement than they expected and they’re enjoying it,” said Keckler.

Some expenses are turning out to be higher than the retirees expected, though. They’re health care, food and taxes, according to Ameriprise.

Most retirees (65 percent) have determined which assets to draw down first, to keep taxes at bay, Ameriprise said. Keckler thinks pre-retirees should take a page out of the retirees’ book. “If they don’t learn a lesson from those who’ve gone before them, they’ll have less ability to control their taxes in retirement,” she noted.

Photograph of Richard Eisenberg
Richard Eisenberg is the former Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and former Managing Editor for the site. He is the author of "How to Avoid a Mid-Life Financial Crisis" and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch. Read More
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