Want to improve your chance of having a comfortable retirement? Just work longer to make up for your financial shortfall, we read. And a lot of people buy it.
Problem is, health and employers don't always cooperate.
A new report shows that while workers have steadily increased the age at which they expect to retire beyond 65 — from 11% in 1991 to 36% when the survey was taken in January and February — the median retirement age has, in fact, been stuck at 62 since 1991.
That's one of the reality checks in the 25th annual Retirement Confidence Survey by the nonprofit Employee Benefit Research Institute (EBRI). The report, which surveyed both workers and retirees, aged 25 and up, isn't all doom and gloom: The percentage of workers in retirement plans feeling “very confident” about retiring comfortably doubled from 2013 to 2015, to 28%. But just 12% of workers without retirement plans are “very confident” about retiring comfortably.
SHOCKING JUMP IN CONFIDENCE
First, the good news. Those very confident workers with retirement plans aren't more optimistic without reason. The big jump in confidence shocked one of the co-authors of the report, EBRI's director of research, Jack VanDerhei, so he dug a little. He looked at the change in account balances in his database of 401(k) plans, which covers 27 million participants. In just the year ending Jan. 1, 2015, gains ranged from a low of 19% to a high of 47.9%.
But whether they're in a retirement plan or not, many of those surveyed don't seem to be making big increases to their retirement savings, Mr. VanDerhei said. On top of the market gains, workers in 401(k) retirement plans might benefit from having their contributions automatically increased each year. And while 69% of workers said they could save $25 more a week than they are now (46% said not eating out or getting take-out would do the trick), they went on to contradict themselves, as 50% also said that the pressure of daily costs means they can't afford to save additional money.
One of the most glaring areas in which expectations and reality diverged in the survey is in the percentage of income that workers think they'll need to replace in retirement: 56% think they should be able to live on no more than 70% of pre-retirement income.
IGNORING MEDICAL EXPENSES
“I suspect most people are ignoring medical expenses," Mr. VanDerhei says. "They magically think Medicare will take care of everything, and very few factor in long-term care expenses.”
Once they take the latter into account, he says, that 70% estimate blows up, unless they're lucky enough to have a good long-term care policy. If they're luckier still and don't need long-term care, Mr. VanDerhei figures people can probably get away with 100% of pre-retirement income. Yet just 10% of workers estimated that they'd need more than 95% of pre-retirement income in retirement.
Then there are the expectations of working longer — and the 10% of workers who plan to never stop working. Retiring before 60 was the goal for just 9% of workers surveyed, but it was the reality for 36%, if not necessarily by choice. While 26% of workers said they would wait till 70 to retire; just 6% of retirees managed it. Over the years, the survey has found that about 40% to 50% of retirees stop work earlier than planned; the percentage was 50% in 2015. In this year's survey, 60% cited health problems or disability, 27% cited changes at their company, and 22% said the need to care for a family member caused them to retire before they had planned.
There was some good news in those numbers, too. Thirty-one percent of retirees said they had left the workforce earlier because they could afford it, and 17% said a desire to do something else played into retiring earlier than planned.
Still, it's a risky proposition.
“If you have a choice, take control of what you can control, and don't defer the pain until later, when you have zero control over whether you'll continue to work or not,” Mr. VanDerhei says.
At the very least, think about giving up take-out and saving that extra $25 a week.