Retirement Readiness

American workers are growing more confident about having enough money to fund a comfortable retirement, according to the latest Retirement Confidence Survey (RCS) sponsored by the Employee Benefit Research Institute (EBRI), the American Savings Education Council (ASEC), and Mathew Greenwald & Associates. The longest running survey of its kind, RCS measures responses from a sample of 1,000 randomly selected participants, age 25 or older, about their projected retirement income, who they rely on for retirement advice, their savings levels and types of investments, and what would motivate them to save more. The survey can be found at www.ebri.org/pdf/surveys/rcs/2014/EBRI_IB_397_Mar14.RCS.pdf.


Following five years of record lows, the 2014 survey results showed that 55 percent of workers are either very confident or somewhat confident about their ability to live comfortably after retirement. Higher confidence levels correlated with higher household income and participation in a retirement plan. Only 10 percent of workers with a plan were not at all confident, compared to nearly half of those with no plan. About four-fifths of full-time workers or their spouses have saved for retirement, and participation in a retirement plan is a key driver.


Retirees are also more confident about their long-term financial security (28 percent in 2014 versus 18 percent in 2013), including the ability to pay for basic expenses, medical expenses and long-term care. However, 44 percent of retirees and 58 percent of workers are concerned with their level of debt.


More than a third of workers and two-thirds of households with incomes below $35,000 have less than $1,000 in savings and investments. Three-quarters of workers without retirement plans are in this situation, and more than half of these workers cite cost of living and day-to-day expenses as the primary reasons why they are not saving for retirement.


Each month, more than 250,000 Americans reach the traditional retirement age of 65, but fewer are leaving the workforce at that point. During the recent recession, billions of dollars in retirement savings were lost, forcing many workers to delay their leisure time. As the stock market rebounded and confidence rose, the “labor participation rate” (people working or looking for work) among Americans age 55 or older fell. In 2010, about 10 percent of the baby boomer generation was retired. By March 2014, this number increased to 17 percent.


The economic impact of the 75 million baby boomers (born between 1946–1964) created unprecedented rates of employment, consumer spending and home ownership. The peak working years of this generation produced a record high in the labor force participation rate in the 1990s. In 2003, 82 percent of baby boomers were still working, but, within a decade, only 66 percent remained employed.


Higher workforce participation rates generally correlate with economic growth. Retirees no longer produce anything directly, spend less and are more likely to depend on others (including the government or their children) for support. The “dependency ratio” measures the number of people outside of work age (18–64) per 100 adults within that age range. As the number of retirees (dependents) increases, there are fewer working people to support them and contribute to economic growth.


The dependency ratio fell from 65 in 1980 to 59 in 2010 but is now on the rise. The U.S. Census Bureau predicts a return to 65 in 2020, and a peak of 75 in 2030. As average life spans approach the mid-80s, more people continue working past 65, but most will retire well before age 80. Defined contribution retirement plans and concerns about the health of Social Security create uncertainty about the future. If pension investments fluctuate, will the boomers outlive their money?


What impact will these trends have on the economic health of the country? The good news is that the United States is faring better than many other developed countries, where larger portions of the populations are older than 65 and continuing to increase. A higher rate of immigration actually reduces the average age of the U.S. population, since immigrants tend to be younger and have higher birth rates than the general population. By 2050, up to 22 million immigrants will be added to the workforce.


The children of the baby boomer generation—sometimes called the “echo boomers”—are also entering their prime working years. These teens and 20-somethings, born in the 1980s and 1990s, make up an even larger portion of the U.S. population than the boomers. As their parents delay retirement, these children experience clogged career pipelines and fewer opportunities for advancement.


The dependency ratio is likely to flatten out by 2030, due to the higher numbers of echo boomers and immigrants in the workforce. So, if you’re a baby boomer, it looks like you’ll be able to enjoy a comfortable retirement after all—but you’ll have to unclog the career pipeline and let your children earn enough money to support you if you do outlive your money.

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