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Knowing You Should Be Prepared and Being Prepared Are Two Different Things

There is a disconnect between knowing one should be ready for retirement and actually being so. Recent research doesn’t just convey bad news in that regard, however — there’s good news, too.

In “2017 Financial Security National Survey of Private Sector Employed Adults Age 18-64,” a study conducted by NORC at the University of Chicago and funded by AARP, 3,920 private-sector workers age 18-64 from across the United States were surveyed between Nov. 1, 2016 and Jan. 16, 2017. The bad news: Many people do not consider themselves on a path to retirement readiness. The good news: There’s strong agreement about the need to save for retirement and on interest in participating in plans that will make it possible.

Furrowed Brows

Many private-sector workers are not sure it will be possible for them to retire — ever, says the study. Just over 70% are at best somewhat confident, if not in despair, that they will be able to retire at all. In a recent report, Segal Consulting echoes that sentiment, saying “For many Americans, retirement security seems like an impossible dream.”

They’re worried, too. Almost 75% are “anxious” that they will not have sufficient funds to live comfortably if they do retire.The 27th Annual Retirement Confidence Survey (RCS) from the non-partisan Employee Benefit Research Institute (EBRI) and Greenwald & Associates shows similar results.

In that study, about one-third (30%) of workers say that they worry about their personal finances while at work, and more than half of these workers believe they would be more productive at work if they didn’t spend time worrying. In addition, stressed workers (63%) are more than three times as likely as unstressed workers (17%) to report that they worry about their personal finances while at work.

Why the gloom?

For one thing, says the AARP study, many Americans are still struggling with the after-effects of the Great Recession. It cites “years of high unemployment and low wage growth” as additional factors behind widespread financial insecurity. Also, the study says, saving is a challenge for a majority: 60% can only plan for the next year or less, 25% can only plan through the next paycheck and nearly 10% cannot plan ahead financially at all.

And the problem is compounded for those with no access to an employer-provided retirement plan, the study says, warning that they “have an immensely diminished ability to plan years into the future, often limited to planning paycheck-to-paycheck or not at all.” And that’s not all, the study points out, adding that 55 million Americans find that they cannot spare any money out of their regular paychecks to set aside for retirement.

But that doesn’t mean they don’t want to. Ninety percent of the workers NORC surveyed wish they had saved more for their retirement, and that sky-high level cuts across all areas of the ideological spectrum.

Segal, in its recent paper, cites a U.S. Government Accountability Office (GAO) study that found that the reason most of the people who do not participate in an employer-provided plan are not doing so is that their employer does not offer one. “Those statistics are a cause for concern because study after study demonstrates that having access to a retirement savings plan at the workplace and contributing through payroll deduction is the most effective way for workers to build retirement savings,” Segal says.


Rays of Hope

The AARP study is not just doom and gloom — there are some rays of hope shining from its pages as well. For instance, most respondents said they “are eager” to save for retirement if they have the opportunity.

Not only that, the study suggests that people are still forward-thinking. A whopping 93% believe it is important for the next generation to gain, when still young, money management skills and the ability to save for retirement. Even better, these sentiments hold regardless of ethnicity, ideology and race.

And the American Dream is alive and well: 71% said they expect that the next generation will do at least as well as they have, if not better.

What to Do?

The AARP study bolsters the notion that employer-provided retirement plans are of key importance in establishing and enhancing individuals’ retirement security. A strong majority — 86% — of those who lack access to an employer-provided plan said they likely would participate in such a plan if their employer had one. And more than 75% of those whose employers offer a plan do participate.

The EBRI/Greenwald Associates study also provides statistical support for the notion that employer-provided retirement plans are part of the answer. It says that workers who have a retirement plan also are more likely to feel they are financially secure; 7 in 10 workers with a retirement plan feel they are at least somewhat financially secure, while only a third of those without a plan feel financially secure.

Workers who have a retirement plan, whether a defined contribution plan, defined benefit plan or IRA, are far more likely to feel confident about having enough money for retirement according to EBRI and Greenwald Associates. Workers reporting they or their spouse have money in a DC plan or IRA or have benefits in a DB plan from a current or previous employer are more than twice as likely as those without any of these plans to be at least somewhat confident (71% with a plan vs. 33% without a plan), says their study.

There is strong sentiment, the AARP study says, for government action to help employees to save and to support small businesses in helping employees to save. That view knows no political ideology — 80% of conservatives, 80% of moderates and 90% of liberals hold it. And nearly as many of each group support states setting up retirement savings plans.

Segal adds that such plans have an additional benefit — its study found that increased retirement saving that is sufficient to take at least some of the households off state poverty assistance by retirement correspondingly reduces the amount a state spends on Medicare.