There’s a lot of guesswork going on when it comes to retirement savings. Many Americans are continuing to feel pretty good about their financial path to retirement, but actual data show the majority of workers have no idea how much they will need later in life.
Almost three-quarters of people surveyed by the Employee Benefit Research Institute said they are “confident” or “very confident” with what they are doing to save for retirement. The number shoots to 74 percent for workers with a retirement plan at their job compared with 39 percent for those without a plan at work.
Here’s the kicker: More than half of those surveyed said they or their spouse have not calculated how much money they need to save for retirement. Nearly half guessed that they will need about $500,000 to retire, but 54 percent reported they have less than $25,000 in savings.
“People would get a more realistic number if they would just do the numbers,” said Craig Copeland, senior research associate and co-author of the report, the 2016 Retirement Confidence Survey.
The responses were part of the 26th annual survey, which was conducted with market research firm Greenwald & Associates. It is the longest-running survey of its kind, gathering responses from 1,000 workers and 505 retirees. Retirement confidence was at record lows between 2009 and 2013, increased from 2014 to 2015 and plateaued this year. Even though confidence has leveled off, people are feeling better about their ability to pay for daily needs as well as their ability to pay for medical expenses in retirement, Copeland said.
“This report is more positive, but there are people who could be doing more” to save for retirement, Copeland said.
Lack of confidence spiked when workers said they carried debt. Only 9 percent of workers who say they have a major debt problem are very confident about their retirement savings plan. Forty percent say they need to put off retirement savings to pay for daily expenses.
This is an opportunity for companies, said Virginia Maguire, director of retirement product and solutions at human resources consulting firm Aon Hewitt.
Companies need to show workers, “Yes you can save and pay off debt,” Maguire said. “They may not perhaps do it all at once, but they can live for today, plan for the future and for the unexpected.”
Aon Hewitt estimates that workers will need to have saved 11 times their pay at age 65 in order to have a comfortable retirement. Only 1 in 5 people at large corporations will have more than enough money at retirement, according to statistics from Aon Hewitt’s 2015 study titled “The Real Deal.” Plus, Aon Hewitt estimates workers will have to wait until they are 68 to have enough retirement money saved up. About 16 percent will have to wait until age 75.
These are pretty dreadful statistics, but Maguire said companies can improve the situation by providing a clearer picture of what retirement will look like for workers. For many, retirement is so far away, and college bills or other payments are coming due much sooner; it’s hard to see how much is really needed. Often, workers can get a false sense of confidence when they see a big number in their account balance.
“Drawing the picture of what retirement looks like today is really important,” Maguire said. “So often, people don’t have enough saved.”
Today, more companies are focusing on financial wellness, another Aon Hewitt study showed. Giving workers access to tools that will help them with household budgeting, managing health care spending and debt can ultimately help them see what they can do about saving for retirement, Maguire said.
“Having a plan is going to help [people] get to where they need to be,” she said. “Putting someone through a formal financial assessment will help that person understand how to improve their financial state.”