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Why the Good News About Retirement Isn't So Great

The public's optimism hides a dark truth

By Richard Eisenberg

At first glance, the top-level findings from the mother of all retirement surveys look cheery and echo a recent Wells Fargo survey I wrote about:

  • Americans’ confidence in their ability to afford a comfortable retirement is up from a year ago, according to the Employee Benefit Research Institute’s (EBRI) 24 annual Retirement Confidence Survey. In the 2014 survey, 55 percent of workers said they were either somewhat or very confident about having enough money for a comfortable retirement, up from 51 percent last year.
  • And retirees, overall, are feeling better about their prospects: 28 percent are now “very confident” about having a financially secure retirement, up from 18 percent in the 2013 survey.

Scrubbing the Numbers

But this year-over-year optimism isn’t true for everyone when you scrub the numbers.

(MORE: Surprising News About Finances of People Over 50)

“The thing that shocked me was that all of that increase, at least in the workers who were very confident in their ability to afford a comfortable retirement, appeared to come from people who were in employer plans,” said Jack VanDerhei, EBRI research director and co-author of the report. “The numbers for people who were not in plans were absolutely flat.”

Another split in retirement prospects: Those surveyed with household incomes of $75,000 or more were more optimistic about their retirement prospects than those with lower incomes. Roughly a quarter of workers age 45 to 54 (27 percent) and four in ten of those 55 and older (42 percent) have $100,000 or more in savings and investments;

Put it all together and if you don’t have access to a 401(k)-type plan — you’re self-employed or work for a small business, generally speaking — or you do, but can’t afford to put money in, you’re probably not feeling much better about retirement than a year ago. The survey found that 36 percent of workers said they have less than $1,000 in savings and investments, up from 28 percent in the 2013 survey.

What Accounts for the Optimism

So why are some workers and retirees feeling better about their retirement these days?

It’s not because they’re saving more or spending less (they’re not). It’s not because they’re taking more initiative and estimating how much money they’ll need for their retirement years ahead (they’re not). Just 44 percent of workers have ever tried to estimate their retirement savings needs, according to EBRI.

“In the aggregate, reported worker savings remain low and only a minority appear to be taking basic steps to prepare for retirement,” according to EBRI’s report.

No, the reason so many people are feeling better about retirement is because last year was a very, very good year for the stock market. The Standard & Poor’s 500 stock index was up 29.6 percent, its best year since 1997 and the Dow rose 26.5 percent, more than it has since 1995.

In other words, like Daft Punk, they got lucky.

“Those people who were in plans in 2013 and 2014 had, on average, higher account balances in 2014,” says VanDerhei. “My guess is that’s probably what’s driving the upward confidence among people with retirement plans.”

Those account balances grew partly from the money the employees invested in the plans and, in many cases, partly from their employers’ match — putting in 50 cents or $1 for every $1 the worker contributed, up to a certain limit.

Bleak Prospects for Those Without Retirement Plans

“It’s absolutely mind boggling how bad the prospects are for those people without some kind of retirement plan,” say VanDerhei. “They’re simply not saving on their own and if they’re not in the highest quartile of income, they don’t have the resources to finance their own retirement.”

But that’s not all. “If you want to get even more doomsday, combine that with what will happen to the Social Security trust fund within 20 years; the situation will become even more severe for people without retirement plans,” he adds.

(MORE: 5 Money Pitfalls of Pre-Retirees)

Incidentally, if you think that retirees couldn’t have benefited from the market’s run-up because all of their money is in ultra-conservative bank accounts and money market funds, you’re wrong. VanDerhei says that many retirees who’ve rolled over 401(k) plans into IRAs are investing them “aggressively” — meaning they’re still holding a hefty amount in stocks.

Few Save On Their Own


Now, it’s true that working people without employer-sponsored plans are legally allowed to save for retirement on their own through Individual Retirement Accounts. Frequently, however, they don’t.

“When you look at workers with incomes between $30,000 and $50,000, typically about 70 percent of those can contribute to employer-sponsored retirement plans, do," said VanDerhei. "But among workers with those incomes who aren’t eligible for the plans, an extraordinarily low percentage — in the single digits —  save for retirement.” Even if they do, there’s no employer match for them.

Striking Lack of Realism

This year’s survey, like last year’s, also showed a striking lack of realism about retirement by many Americans.

While 65 percent of workers said they expect to continue working in retirement, only 27 of retirees actually do.

Many retirees don’t work because they aren’t healthy enough, can’t find jobs or simply don’t want to. So if you’re putting your chips on bringing in substantial retirement income through employment, you’re likely making a bad bet.

Single women, as a whole, need to come to grips with the retirement reality.

It’s well known, of course that women, on average, live longer than men, earn less and work fewer years. So you’d think that with all of that, plus the lack of a spouse providing some retirement income, single women would be especially concerned about having enough money for a comfortable retirement.

But get this: a full 40 percent of unmarried women told EBRI they think they need under $250,000 for retirement (by contrast, only 28 percent of all workers and 22 percent of married women said that).

Time for an Automatic IRA?

Put it all together and the survey makes a pretty strong case for the federal government to create an Automatic IRA-type program, allowing every employee to put money away for retirement through an automatic payroll deduction plan.

I don’t see that happening anytime soon, though, since the proposal would get slapped with the “mandate” label in Washington. “A mandate seems problematic in the political context,” said VanDerhei.

In the meantime, then, we’ll likely continue to have two retirement classes in America: Those with employer-sponsored retirement plans, who stand a decent chance of a decent retirement if they contribute regularly, stock market willing. And those who don’t.

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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