Retirement Savings Stuck in Neutral

More Americans realize they aren’t on track to meet retirement income needs, according to Northwestern Mutual, but the country as a whole is struggling to address longevity risk.

A recent study from Northwestern Mutual shows a large slice of the U.S. work force has serious doubts about achieving financial preparedness for the long-term future. For example, about one in four working adults age 25 and older (26%) do not believe they will be financially prepared to live to the relatively young age of 75 without finding supplemental income beyond personal savings.

Even more workers, about 32% of those over age 25, are pessimistic about their financial prospects should they live to 85, the data shows, and nearly 40% say they would not be able to fund retirement through age 95.

Northwestern Mutual researchers are quick to point out that, despite these troubling figures, Americans today feel slightly better about their financial circumstances than they did a year ago. According to the study, people age 25 and older feel they’re moving slowly in the right financial direction. Close to half (47%) of workers feel financially secure for the short term, a slight uptick from the 43% who felt this way last year. And just one in four (26%) say they are experiencing current financial insecurity—down from the one in three (32%) a year ago.

On another positive note, 42% of adults age 25 and older expect their financial situation to improve in the next year, though one in five say they still have a lot of catching up to do when it comes to achieving anything like retirement readiness. Optimism among the latter group is tempered mostly by the need to close the projected retirement income gap and the continuing effects of the slow-growth economy.

“Tempered optimism is a reasonable sign of progress, especially since it comes at a time when Wall Street and Main Street are giving somewhat mixed signals,” says Greg Oberland, Northwestern Mutual president. “On one hand, the stock market seems to set new records every day. On the other, we are challenged by high unemployment and a slow-growth economy.”

Oberland adds, “It’s good to see that people feel their financial footing is a bit steadier, while also recognizing there’s still a long way to go.” He says that, while many Americans feel they are moving in the right direction personally, the data shows they do not feel the same about the country as a whole.

Half of all adults believe the U.S. economy is “stuck in neutral,” and 29% feel it’s going in reverse. Only 22% say the economy is moving forward, suggesting macroeconomic trends will likely have to shift before a major swing in optimism can occur.

Oberland stresses that being financially prepared for retirement requires more than just relying on one’s savings. It means having the appropriate solutions in place to navigate changing needs over the arc of a worker’s lifetime. While two-thirds (67%) of American adults have a savings account, the majority of people aren’t planning beyond it, as suggested by the following data points:

  • Only 27% of U.S. workers own stocks and only 14% own bonds;
  • 23% own mutual funds;
  • 14% own real estate;
  • 24% own term life insurance, and 23% have permanent life insurance;
  • 14% have an annuity;
  • 9% have long term care insurance, and 8% have disability insurance;
  • 39% have an IRA; and
  • 6% have a college savings account.

“The desire and discipline to save are critical, however, on their own are often not enough to achieve long-term financial security,” Oberland explains. “People have to see beyond their basic bank accounts, and understand how to put their money to work—both to accumulate and protect their assets.”

More on Northwestern Mutual’s “2014 Planning and Progress Study” is available here.