Saving for Retirement

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Survey shows confusion on how much to save for retirement

July 05, 2013

When aiming for retirement, many workers are like amateurs at an archery range. A bull's eye is rare, and most miss the target.

Steve UtkusThis year's edition of an annual poll by a Washington, D.C.-based think tank confirms that many workers have not calculated or considered how much they'll need to save for later in life, according to Steve Utkus, head of Vanguard Center for Retirement Research.

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In the 2013 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI), workers gave divergent answers to a new question: "How much of your income should you save for retirement?"

Nearly a quarter of the respondents said they thought they needed to save 30% or more of their income, 1 in 5 said it should be 14% or less, and nearly another quarter admitted they simply didn't know.

"It's an indication of savings illiteracy," Mr. Utkus said. "My interpretation of that is they're grasping for straws. Individuals, when they know they need to do more of a thing, but they don't know how much or for how long, they just guess."

Guidelines are available for plan participants. Vanguard suggests saving 12%–15% of income for retirement. That includes any employer contributions that may be available.

Because many workers defer planning for—and sometimes saving for—retirement, defined contribution (DC) plan sponsors should consider including automatic enrollment, reenrollment strategies, and default selections such as target-date funds in their plans, Mr. Utkus said.

Percentage of household income workers think they need to save for a comfortable retirement

EBRI household survey

How much is enough?

The EBRI Retirement Confidence Survey measures the views of working-age and retired Americans regarding retirement, their preparations for retirement, their confidence in various aspects of retirement, and related issues. For years, EBRI surveys have asked workers how much they think they need to save for retirement. This year, as in prior years, about one-third indicated $250,000 or less.

Mr. Utkus noted that retirement confidence is less a quantitative assessment of future retirement prospects and more a statement about one's current situation or mood. So this year's finding that only half of workers are somewhat or very confident they will have enough money to live comfortably through their retirement, near the lows observed in 2011, seems to be strongly influenced by the current economic climate, he said.

"Retirement confidence often reflects how you're feeling today about your future. But it's not always what a financial planner may say about your situation, by doing the numbers," Mr. Utkus said. "Some people's outlook may not have changed much, but it has been tarnished by the weak economic climate. For others, they've suffered real hardship, like loss of a job or a house under water, and it's hard to see a path forward, even though they might recover."

Worker confidence in having enough money to live comfortably through retirement

EBRI confidence survey

Retirees surveyed by EBRI are feeling a little more optimistic about their savings and income: 62% are somewhat or very confident about having enough money to live comfortably through retirement. That's near recent lows hit in the aftermath of the financial crisis, but above the 47% seen in 1998.

Catching up

Mr. Utkus said he believes a more accurate picture of retirement preparation can be found in the 2012 results from the EBRI Retirement Security Projection Model, which looks at the aggregate sources of net wealth and income available for retirement, including Social Security and housing values.

That model shows older workers are doing fairly well with their retirement savings. More than half of baby boomers, now roughly between the ages of 49 and 64, and members of Generation X, ages 39 to 48, have enough of the wealth that they should have at this point to provide their income needs in retirement. Another 25% of in both generations are getting close to their goal but may need to save more or work longer.

Such data demonstrate that most workers really don't get serious about retirement savings until they are in their mid-40s, Mr. Utkus said. Younger workers especially tend to ignore pleas for participation in DC plans, he said.

"It's better to autoenroll young workers, and later in life, wake them up, so to speak," Mr. Utkus said. "Then they'll be more motivated."


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