So why hasn’t confidence improved as a result of the improving economy and stock market? Mathew Greenwald, principal, Mathew Greenwald & Associates, co-sponsor of the survey, told attendees at a press conference, it can be explained by workers’ concern about the future of the economy. Only 16% of workers surveyed said they are confident their investments will grow in value, only 8% are very confident the economy will grow at least 3% for the next 10 years, and only 7% are very confident inflation will average no more than 4% for the next 10 years.
For workers, the only choices are to save more now or work longer (see “Expectations about Retirement Are Changing”). However, Greenwald pointed out the survey indicates workers feel they cannot respond to the current financial stress by saving more. Fifty-eight percent reported they and their spouses are saving for retirement, down from 65% in 2009. In addition, 60% say they and their spouses have less than $25,000 saved, including 30% who have less than $1,000, up from 20% in 2009.
“Workers are falling further behind and they know it,” Greenwald said.
In addition, Greenwald noted the plan to work longer is risky. Fifty percent of retirees surveyed for the RCS indicated they were forced to retire before they planned to due to poor health, disability or a company downsizing or closure.
So what can retirement plan sponsors do to help? Greenwald says sponsors should consider auto-enrollment and auto-deferral escalation. He pointed out that most employees don’t opt out. The RCS asked workers at what point they would discontinue automatic deferral increases; 27% said at 15% of salary and 20% said between 10% and 14% of salary. “These are good numbers,” Greenwald stated. “This suggests auto-increase will work to get employees to save at acceptable levels.”
According to Greenwald, plan sponsors and advisers should also make a more effective case for the ability of advisers to help and to explain to participants that advisers are not just going to dictate a percent to save and how to invest it.
More about the RCS is available at http://www.ebri.org. See also “Confidence in Ability to Afford Retirement Remains Low.”