Retirement Confidence: the “New Normal”

The Employee Benefit Research Center has some out with a new Issue Brief that surveys Americans’ confidence in their ability to afford a comfortable retirement.*  That confidence is at an all time low, which EBRI expects to be the new normal.  Here’s a peek at the goodies in the report.

Here we have an interesting illustration of this year’s pummeling of workers’ confidence in having enough money to live comfortably throughout retirement years.  I would like to draw your attention to three aspects of this chart.  First, note that the “Not At All” response rose from 10% in 2007 to 27% in 2011.  That’s an increase of 17%, which is pretty significant.  Secondly, the “Very” category dropped from a high of 27% in 2007 to 13% in 2011.  It’s another huge change.  Finally, take a look at the first two columns in the chart, which are 1993 and 1996, yet all subsequent columns are yearly from 2001 onward.  Weird.

And, now we look at retiree confidence.  Again, the “Not At All”s increased from 11% in 2007 to 17% in 2011, and the “Very”s changed from 41% in 2007 to 24% in 2011.  Remember, these are people who’ve already retired.  They’re not estimating about some distant future date, they’re living it now.

Here’s what I think is the most interesting excerpt:

Overconfidence?

One possible explanation for the continuing decrease in overall retirement confidence among workers is that workers are becoming more realistic about their prospects for a financially comfortable retirement given their current level of retirement preparations. This is supported by the fact that the increase in the percentage of workers not at all confident about having enough money for a comfortable retirement appears to be largely the result of loss of confidence among those who have less than $100,000 in savings. This percentage increased sharply among those with savings less than $25,000 (up from 19 percent in 2007 to 43 percent in 2011) and between $25,000–$99,999 (up from 7 percent in 2007 to 22 percent in 2011), while the percentage not at all confident among those with savings of $100,000 or more remains low (5 percent, statistically equivalent to the 2 percent measured in 2007) (Figure 12).

Although this would suggest that younger workers are also more likely than older workers to have lost confidence (because the amount of accumulated savings tends to increase with age), this is not the case.

Younger workers are statistically no more likely than older workers to state they are not at all confident (Figure 13). This might seem counter-intuitive given the positive relationship between age and accumulated savings, but it is likely due to the sizable minority of older workers who have very little savings. While it is reasonable for many younger workers to expect their accumulated savings will grow substantially before they retire, these expectations may not be reasonable for the 29 percent of workers age 55 or older who still have less than $10,000 in savings.

Despite the increasing realism, some workers still appear to provide conflicting responses with respect to confidence and retirement preparation. Sixteen percent of very confident workers are not currently saving for and 33 percent have not done a retirement needs calculation (statistically equivalent to the 37 percent measured in 2007). In addition, 10 percent of very confident workers who are offered a retirement savings plan by their current employer are not contributing to the plan (statistically equivalent to the 14 percent measured in 2007).

– Pages 13-14*

I’m especially interested in that greater realism doesn’t necessarily lead to greater action to fix the problem.  There are, I’m sure, reasons beyond counting.  Of course, there are greater levels of unemployment and underemployment.  There are lots of free-floating anxiety, especially about national and local budgets.  Beyond this, I wonder if there’s a certain amount of learned helplessness that might be affecting the ability of a worker to save for retirement.  After all, if a worker’s retirement plan balances drop frequently enough (negative investment performance, loans and withdrawals for emergencies, withdrawals for basic expenses during extended periods of unemployment), they may decide that there’s no point and give up.

I would be interested to see an exploration into the psychology of saving for retirement.  I don’t know if it’s pertinent to the current changes in worker confidence, but it would probably offer interesting insights.

 *  Ruth Helman, Craig Copeland, and Jack VanDerhei, “The 2011 Retirement Confidence Survey: Confidence Drops to Record Lows, Reflecting ’the New Normal’,” EBRI Issue Brief,  no. 355 (Employee Benefit Research Institute, March 2011).

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