Bridging the Perception/Reality Gap

EBRI Study Reviews Retirement Preparedness

To help plan sponsors prepare their employees for retirement, the Employee Benefit Research Institute’s (“EBRI”) 2016 “Retirement Confidence Survey” affords useful insights on employee behavior and benchmarking data. When it comes to retirement preparation, the study indicates that confidence often doesn’t correlate to the underlying facts. Closing the perception/reality gap stays a large mission for plenty plan sponsors.

Looking at the Numbers

According to the EBRI, following a rebound after the 2008 financial crisis, the overall confidence levels have remained flat during the past two year. The overall confidence levels cover  active retirement plan participants, as well as those not currently covered by a plan or a spouse’s plan.In the most recent  survey, 21% of workers report that they’re “very” confident about having enough money to support  a comfortable retirement, 42% are “somewhat” confident, 16% are “not too” confident and 19% are “not at all” confident.

The EBRI also found that the employee confidence level about having enough money for a comfortable retirement correlates with whether they or their spouse participates in a plan. This essentially can be good news for the plan sponsor. For example, 26% of plan participants report they’re “very confident,” vs. only 10% of nonparticipants.

The retirement confidence level also correlates with how much the employee has in personal debt. According to the study, 32% who reported that debt isn’t a factor, are very confident about their retirement prospects, compared to 9% for whom debt is a major issue.

A relatively large proportion (28%) of employees award themselves high marks for their ongoing efforts to prepare for retirement. Moreover, 43% report being “somewhat confident” about the job they’re doing, with the remainder nearly evenly split between those who aren’t too confident, or not at all confident about the matter.

Perception vs. Reality

The EBRI report also discussed a disconnect between retirement confidence levels and actions. The authors wrote that, “The percentage of workers who reported they and/or their spouse had [ever] saved for retirement peaked in 2009 at 75%, but declined thereafter” . Currently, only 63% of employees reported that they are currently saving for retirement. Yet, 2009 generally marked the beginning of an upswing in retirement confidence.

One perspective on the basis for employee retirement confidence (or lack thereof) is reported levels of retirement savings assets. (See the “Retirement Savings Distribution” chart, which shows the level of retirement savings and the percentage of those workers at each level.) A majority of plan participants that have less than $100,000 in retirement savings is an indication of a significant shortfall, however, the table is not clear as to the workers’ ages, income levels or years of service.

Savings Rate Expectations

When asked to estimate the percentage of their income needed to meet retirement saving goals, of all the respondents covered by a retirement plan, only 18% indicated that they didn’t know. But, responses from the remaining 82% varied widely, with the largest proportion (20%) estimating a required savings rate between 20% and 29% — a highly unrealistic target for most workers with average incomes.

On the opposite end of the spectrum, 9% of survey respondents estimated that a savings rate below 10% would be sufficient, and an equal percentage stated that they need to be saving at least 50% of their income annually. The survey data doesn’t specifically address the accuracy of those estimates, however, what it does show is that employees generally aren’t saving at the rate they believe they should be. This may be a source of the expectation by 13% of survey respondents that they’ll need to postpone retirement beyond the age they had once expected to retire.

With regards to age of retirement, of all the employees surveyed, 26% expect to retire at age 65. The same percentage holds for those who expect to retire at age 70 or beyond, while 6% don’t ever expect to retire.

Education is Key

On a positive note, of all the employees who recognize a need for receiving advice on retirement investing, 98% prefer getting advice in person, while the other 2% were “very interested” in using online advice providers.

What does this mean for plan sponsors? In guiding employees toward retiring at their desired retirement age, technology-based systems alone are insufficient to get the job done. Invest in education that employees will use and learn from.

Closing the Gap

Employees with a false sense of confidence in their ability to retire, generallyhave no motivation to change their retirement saving pattern. Making sure your plan participants fully understand the reality of their retirement savings goals can result in a successful retirement plan.

Retirement Savings Distribution
(for workers covered by a retirement plan)
Less than $1,000 9%
$1,000–$9,999 15%
$10,000–$24,999 16%
$25,000–$49,999 13%
$50,000–$99,999 13%
$100,000–$249,999 17%
$250,000 or more 18%
Source: 2016 EBRI Retirement Confidence Survey

© 2016

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