Rosalind Evans
A growing sense of pessimism looms over retirement, with workers and retirees increasingly anxious about their future financial security. Are these concerns here to stay?
In reviewing the 2022 Employee Benefit Research Institute (EBRI) Retirement Confidence Survey last April, I noted a distinct shift in the retirement outlook for most active workers and retirees. It was akin to the foreboding sense of an impending storm while enjoying a pleasant picnic.
With the release of the 2023 survey, it’s clear that the storm has indeed arrived.
The confidence of workers and retirees in their ability to secure a comfortable retirement has seen a significant decline over the past year, echoing the financial uncertainties that were prevalent during the 2008 crisis.
Decline in Retirement Confidence among Workers and Retirees
The latest EBRI poll, conducted in early 2023, reveals a drop in retirement prospects, with only 64% of workers and 73% of retirees expressing confidence, compared to 73% and 77% in the previous year. This survey, the longest-running of its kind, is conducted in partnership with Greenwald Research.
In recent retirement surveys, John Hancock, Fidelity, and Schroders also reported dwindling confidence in retirement.
“We’re beginning to see a resurgence of financial stress among employees in the wake of the pandemic and escalating inflation and interest rates,” said Lynda Abend, Chief Strategy Officer for John Hancock Retirement.
The Federal Reserve reported that the average retirement account balance is a mere $144,000. Contrarily, the national average for a comfortable retirement necessitates an estimated $967,000 in savings. A Credit Karma survey disclosed that about 27% of individuals aged 59 and above have no retirement savings.
56% of workers feel lagging in retirement savings, an increase from 43% reported in 2021, according to the John Hancock survey “Stress, Finances, and Well-Being” in 2023.
According to Fidelity’s Retirement Savings Assessment 2023 survey, the typical U.S. household has a Retirement Score of 78, placing it in the “Fair” zone. In simpler terms, the average saver is projected to have 78% of the income they will need to cover retirement costs. Baby boomers fared slightly better, with a score of 87.
Retirement Concerns: Inflation, Interest Rates, and Market Volatility
The EBRI survey respondents, workers and retirees, expressed concerns over high inflation, rising interest rates, and stock market volatility. “There’s a significant drop in confidence that assets will keep pace with inflation compared to last year,” commented Lisa Greenwald, CEO of Greenwald Research.
EBRI’s director of wealth benefits research, Craig Copeland, added that “generations of workers have not experienced this level of inflation before.”
Apart from these, respondents also voiced other serious concerns, such as the potential of an economic recession in the next 12 months and increasing housing costs.
Declining Retirement Accounts
The EBRI survey reports that 40% of workers and 58% of retirees have experienced a decrease in their retirement account balances over the past year. About a quarter of workers reported a decline between 11% and 25% in their retirement account balances.
In 2022, the S&P 500 index fell by 19.6%, while the Dow declined by 8.7%.
Half of the workers aged 45 and older admitted in the Schroders 2023 US Retirement Survey that their workplace retirement plan performance caused them anxiety the previous year. A staggering 62% hoped their accounts would reach their desired savings goals.
Fidelity Investments’ financial consultant, Ryan Viktorin, noted that their Retirement Savings Assessment 2023 survey revealed a trend of people saving less for retirement. She attributed this to the pressures of inflation and higher interest rates, making saving more challenging.
The Debt Problem
EBRI data also shows a worsening debt situation among workers. Currently, 62% of workers consider their debt a problem, an increase from 56% in 2022. Retirees’ sentiment remains unchanged from 2022, with about a third stating their debt is an issue.
“The rising interest rates for loans and purchases present significant challenges for workers, as salaries fail to keep pace and debts often accumulate on credit cards,” Copeland explained.
As per Lending Tree, an online lending marketplace, credit card debt among Americans is nearing a record $1 trillion, and balances have increased by $130 billion since the last quarter of 2021. The average credit card interest rate is 20.09%, with new credit card offers averaging around 24%.
Generation X vs. Baby Boomers
The EBRI survey and a few others suggest that Generation X tends to be more pessimistic about their retirement prospects and is in a worse financial situation than the baby boomers.
Overwhelming college costs for their children is a significant factor, according to Abend.
While around two-thirds of Gen X workers surveyed by EBRI are saving for retirement, a higher proportion of workers aged 55 and older, 77%, are doing so.
Viktorin pointed out that Gen Xers are “skeptical about utilizing Social Security or pension benefits—benefits that many of their baby boomer peers rely on in retirement.”
Confusion Over Financial Advice
A sizable proportion of workers surveyed by EBRI—two out of five—expressed uncertainty about where to seek reliable financial or retirement planning advice. This was mirrored in the John Hancock survey, which noted that only 24% of Gen Xers and 38% of boomers consulted with financial advisors last year.
“Understanding where to find a trustworthy financial professional remains a significant challenge,” Copeland said. “Many probably don’t believe they have enough savings to justify hiring an advisor. Those without a retirement plan usually have little to no savings. Adding another one is hard if you struggle to cover your expenses.”
However, Greenwald noted an increasing number of workers citing their employers and retirement plan providers in this year’s survey as sources of retirement planning information.
Lack of Retirement Planning
Yet, Greenwald also noted that relatively few workers have taken steps toward prudent retirement planning. “It’s quite rare for workers to calculate how much money they will need in retirement,” she said, with only 51% doing so.
There needs to be more retirement planning among Gen Xers in their 40s and 50s. According to EBRI, only 49% of workers between 45 and 54 have calculated how much retirement savings they need. Among them, just 48% have estimated the monthly income they will need in retirement.
“Putting off retirement planning until you’re 55 isn’t a good strategy,” EBRI’s Copeland said. “If you haven’t started by 45, you’ll likely be unpleasantly surprised when you reach 55.”
Is the Retirement Pessimism Justified?
Despite the reasonably healthy U.S. economy and historically low unemployment rates, the EBRI survey results raise the question: Are workers and retirees overly pessimistic about their retirement prospects?
Copeland’s response was nuanced. “One-half of the country firmly believes that the economy is in the worst state it’s ever been. Inflation can significantly skew perceptions as people are continually reminded about the rising cost of everyday goods and services,” he said.
However, he also suggested that some workers and retirees might have previously held unrealistic expectations about their retirement finances during the relative calm of pre-2022 when the stock market was buoyant and interest rates and inflation were low.
“Perhaps their current confidence, influenced by recent economic events, is a more accurate reflection of reality,” he concluded.
The outlook for retirement among American workers and retirees is increasingly pessimistic, influenced by factors such as high inflation, rising interest rates, and volatile stock market conditions.
The gap between average retirement savings and the amount required for a comfortable retirement is causing concern, as is increasing debt levels. Generational differences also play a role, with Gen Xers appearing to be more worried about their retirement than their baby boomer counterparts. As the economic landscape continues to evolve, it’s clear that retirement planning and financial literacy will be crucial elements in helping individuals navigate their path to a comfortable retirement.
