Worried about retirement

Workers’ and retirees’ confidence in having enough money to live comfortably throughout retirement dropped significantly in the past year, the most since the 2008 financial crisis.

Retirement confidence drops for workers and retirees

Only 64% of workers and 73% of retirees are confident about their retirement prospects, down from 73% and 77% a year ago, according to the new EBRI poll (conducted in January and early February 2023). The survey is the longest running one of its kind, conducted with Greenwald Research.

Other recent retirement surveys from John Hancock, Fidelity and Schroders had similar results about dipping retirement confidence.

“As we’ve come out of the pandemic, with heightened inflation and interest rates, we’re starting to see financial stress start to increase again in employees,” said Lynda Abend, head of strategy for John Hancock Retirement.

The typical retirement account balance is just $144,000, according to the Federal Reserve. But the national average for one person to live comfortably in retirement is roughly $967,000 in savings, the Fed noted. About 27% of people 59 and older have no retirement savings, according to a Credit Karma survey.

In John Hancock’s 2023 “Stress, Finances, and Well-Being” survey, 56% of workers said they’ve fallen behind on retirement savings, compared with 43% saying so in 2021.

Fidelity’s Retirement Savings Assessment 2023 survey said America’s Retirement Score for the typical U.S. household is now 78, which puts it into the “Fair” zone. Translation: Fidelity believes the typical saver is on target to have 78% of the income they’ll need to cover retirement costs. (Boomers scored somewhat better: 87.)

What’s worrying people about their retirement prospects?

High inflation, rising interest rates and stock market volatility especially spooked workers and retirees surveyed by EBRI. “Confidence that assets will keep up with inflation is down from last year significantly,” said Lisa Greenwald, CEO of Greenwald Research.

Craig Copeland, EBRI’s director of wealth benefits research, noted that “you have generations of workers who have not seen inflation like this before.”

But most workers and retirees told EBRI they also had six other serious concerns. These included that the U.S. economy will go into a recession in the next 12 months and that housing costs will rise.

“A lot of times, the [retirement] confidence goes with how well you’re feeling right now,” said Copeland. “So, people who think they’re in a stressful situation projected that going forward into their retirement.”

The volatile stock market, Copeland noted, “really gives people anxiety that they’re not going to have that continual buildup” in their retirement accounts that they’ve had.

Read: Stock market making you nervous? How to control your investing losses.

Shrinking retirement accounts

In EBRI’s survey, 40% of workers and 58% of retirees said their retirement account balances fell over the past 12 months. About a quarter of workers reported their retirement account balances dropped between 11% and 25%. Retirees’ account balances tended to have smaller losses.

The S&P 500 index SPX, +0.83% fell 19.6% in 2022; the Dow was down 8.7%.

In the Schroders 2023 US Retirement Survey, half of workers 45 and older said their workplace retirement plan performance last year caused them anxiety and 62% of those with such plans worry those accounts won’t grow to the level they hoped to achieve.

Ryan Viktorin, a financial consultant at Fidelity Investments, said her company’s Retirement Savings Assessment 2023 survey showed “a pattern of people saving less” for retirement lately because the pinches of inflation and higher interest rates on debt are making it harder to find excess cash.

What’s up? Debt

Workers’ debt levels have been worsening, too, according to EBRI. Currently, 62% of workers say their debt is a problem, up from 56% in 2022 (among retirees, about a third say their debt is a problem, unchanged from 2022).

“The high interest rates to borrow and purchase are really troublesome for workers because salaries are not keeping up and people have to pay for things somehow, so it ends up on a credit card,” said Copeland.

Americans’ credit card debt is approaching a record $1 trillion and credit card balances have risen by $130 billion since the fourth quarter of 2021, according to Lending Tree, an online lending marketplace.

The average credit card interest rate: 20.09%; it’s roughly 24% for all new credit card offers.

Generation X vs. Boomers

Generation X tended to be more pessimistic about their retirement prospects and in worse shape financially than baby boomers, according to the EBRI survey, as well as a few other polls.

Staggering college costs for Gen Xers’ children are a big factor, Abend said.

Only about two-thirds of Gen X workers EBRI surveyed are saving for retirement; by contrast, 77% of workers 55 and older are.

Viktorin said Gen Xers are “pessimistic about being able to take advantage of Social Security or pension benefits—something many baby boomer peers are able to leverage in their retirement tool kit.”

Uncertainty about where to get financial advice

Many workers EBRI surveyed—two in five—said they didn’t know who to go to for solid financial or retirement planning advice. John Hancock’s survey echoed this, noting that only 24% of Gen Xers and 38% of boomers it polled met with financial advisers last year.

“There still is a very difficult understanding of where to go to get a financial professional and who to trust,” Copeland said. “And a lot of people probably don’t think they have enough money to make [hiring an adviser] worthwhile. Those without a retirement plan have virtually no savings. If you can’t pay for your expenses, it’s hard to add another expense.”

More workers in this year’s survey cited their employers and retirement plan providers as a source of retirement planning information, Greenwald said.

A lack of retirement planning

But not many workers have taken what financial planning experts might consider prudent steps for retirement planning, Greenwald noted. “The percentage of workers who calculate how much money they’re going to need in retirement is pretty low,” she said. (It’s 51%).

There’s even a lack of retirement planning among many Gen Xers in their 40s and 50s.

Only 49% of workers aged 45 to 54 have tried to figure out how much money they’ll need to have saved by the time they retire so they can live comfortably in retirement, according to EBRI. Just 48% of them have estimated how much monthly income they’d need in retirement.

“Waiting until you’re 55 isn’t the right time to start preparing for retirement,” EBRI’s Copeland noted. “If you haven’t done it by 45, you’re not going to like what you see when you’re 55.”

Read: Are you 50 or 60 with no retirement savings? There are ways to improve your financial security.

Is the pessimism about retirement justified?

The EBRI survey results raise one key question: Given that the U.S. economy is fairly healthy and unemployment rates are historically low, are workers and retirees too pessimistic about their retirement prospects?

Copeland had a nuanced answer.

“One half of the country clearly believes that the economy is the worst it’s ever been. Inflation can really distort people’s views because they’re continually reminded about the price of milk and higher prices at restaurants,” he said.

But, Copeland added, some workers and retirees may have been overly confident and unrealistic about their retirement finances before the turbulence of 2022, when the stock market was rising and interest rates and inflation were low.

“Maybe now that they see what’s going on, their current confidence is more appropriate,” he said. by Richard Eisenberg for Market Watch.