Retirement confidence

Retirement confidence of Americans in having enough money for a comfortable retirement has taken the biggest dive in 15 years, according to a new survey.

Just 64% of workers are very or somewhat confident they’ll have enough money to live comfortably in retirement, down markedly from 73% in 2022, according to a survey by the Employee Benefit Research Institute (EBRI) and Greenwald Research. Less than three-quarters (73%) of retirees were confident, down from 77% last year. The survey polled 1,320 workers and 1,217 retirees online in January.

Soaring debt and inflation are hurting respondents’ ability to save and even forcing some to reconsider their investment decisions, as many worry about a potential recession.

“The most significant finding is the drop in retirement confidence that hasn’t happened since 2007 to 2008 and 2008 to 2009 when the economy was in a recession,” Craig Copeland, director of Wealth Benefits Research at EBRI, a nonpartisan, nonprofit research institute based in Washington, D.C., and chief researcher for the group’s 33nd annual Retirement Confidence Survey, told Yahoo Finance.

THE TAKEAWAY. Just 64% of workers are confident they’ll have enough money to live comfortably in retirement, down from 73% in 2022.

“Americans are having the same reaction as what they did during a recession,” he added. “The current economy is not the best, but it is certainly not in a recession. This shows that the perception of rising costs and lower retirement balances without the corresponding contraction in the economy and higher unemployment seems to be similar to actually having a contraction in the economy and higher unemployment.”

Inflation worries. Less than 1 in 5 (18%) workers report feeling very confident. Retirees’ confidence is a smidge higher, but just over a quarter (27%) say they feel very confident.

Inflation in the past year has clearly affected Americans’ retirement swagger. About 1 in 3 workers (29%) and 42% of retirees said this is the culprit for their lack of confidence in their ability to have a comfortable retirement, according to the EBRI research.

Hand-in-hand with that angst: 4 in 10 workers are not confident that down the road their savings will be able to keep up with inflation when they’re retired. That’s a sizable increase compared with the third of workers who felt that way last year.

Meanwhile, a hefty three-quarters of workers are concerned their salary will not be able to keep up with inflation, according to the EBRI report. They’re probably right about that. Fewer employers are doling out pay raises and those that will this year aren’t exactly being magnanimous, according to Payscale’s 2023 Compensation Best Practices Report.

For retirees, the rising day-to-day living has taken a toll this past year.

Half of retirees report that their overall spending jumped by 36% from last year. And those who said that their retirement lifestyle has taken a turn for the worse inched up since the pandemic, with just 22% who said they feel it is worse now this year compared to 17% in 2020.

A deep-seated worry for 84% workers and 67% of retirees is that the escalating cost of living will make it harder for them to save going forward.

Debt loads pack a punch

Credit: Employee Benefit Research Institute (EBRI) and Greenwald Research

Credit: Employee Benefit Research Institute (EBRI) and Greenwald Research

Another reason for the grim outlook among workers may be that their debt levels are up.

Almost two-thirds of workers believe their debt is a problem, up from 54% in 2021. A majority of workers, 8 in 10 workers, are concerned that interest rates will continue to rise and create even more havoc on their ability to pay down debt and save.

At the end of last year, Americans’ total credit card balance was the highest it has been since the Federal Reserve Bank of New York began tracking in 1999. While the federal funds rate rapidly grew over the past year, so has credit card interest rates in the US, rising to all-time highs of roughly 20% in the first quarter of 2023, up from 16% a year ago.

The fallout: Nearly half of workers and a quarter of retirees blame debt as the stumbling block that is putting the kibbosh on their ability to save for retirement.

“Workers appear to recognize that they are reaching a point where they will not be able to sustain their spending even with the funding from debt,” Copeland said.

“The discomfort with debt did increase in 2023 for workers, but it did not go above the levels before the onset of the pandemic,” he added. “If they go any further, many workers will likely have to make significant changes to the amount they are spending and saving,”

A shift to ‘more conservative investments’

Soaring debt and inflation are hurting the respondents’ ability to save and even forcing some to reconsider their investment decisions, as many worry about a looming recession.

Another drag on confidence is the hit Americans’ retirement savings have taken in the past year.

Four in 10 workers and nearly 6 in 10 retirees report that their retirement account balances have fallen over the past 12 months. Of those, a third reported their balances decreased by 1% to 10% and half reported they decreased by 11% to 25%.

“Another behavior of note is that workers appear to be making changes in their retirement accounts,” Copeland said.

More than a third (37%) ramped up their contributions, and 16% moved their investment to more conservative investments, up from 9% who said they did so in last year’s survey.

“The movement to more conservative investments is something not seen recently,” he added. “This would be in line with the falling account balances and higher money market fund rates in the last half of the year.”

The survey also found that workers are bracing for worse to come. Eight in 10 workers are concerned about a recession in the next 12 months and three-quarters are worried that the stock market will be increasingly volatile and unpredictable.

“We’ve captured some real pessimism and concern beyond inflation,” Lisa Greenwald, CEO of Greenwald Research, told Yahoo Finance. “With that level of pessimism, it’s not surprising that confidence is down. It’s a surprise, perhaps, that it’s not down more.”

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