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Closing the Retirement Expectations “Gap”: Variations in Demographics, Sources of (Mis)Information, and the Implications of a “Bad Guess”
Jack VanDerhei, Ph.D., CEBSResearch DirectorEmployee Benefit Research InstituteWashington, D.C.
® Employee Benefit Research Institute 2013
3B-1
Key “takeaways”
1. How large are the gaps between what workers believe they need and what is likely to actually be required?
2. How do these gaps vary with age, income, employer-sponsored plan coverage, education and type of employer?
3. Which sources of information appear to provide workers with the most accurate assessment of their retirement needs – and why.
4. What are the implications of inaccurate assessments for employers, workers and public policy?
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2013 Retirement Confidence Survey (RCS) Methodology
• 23rd annual measure of worker and retiree confidence about retirement
• 1,254 20-minute phone interviews conducted in January 2013 using random-digit dialing with cell phone supplement
• Interviewed Americans ages 25 and over• Two questionnaire versions
- 1,003 interviews with workers (not retired) - 251 interviews with retirees
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Worker Confidence About Having Enough Money for Retirement Resumes Slow, Downward TrendOverall, how confident are you that you (and your spouse) will have enough money to live comfortably throughout your retirement years? (2013 Workers n=1003)
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1993-2013 Retirement Confidence Surveys.
38%
13%
43%
27%
41%
22%
51%
21% 0%
10%20%30%40%50%60%70%80%90%
100%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Very Somewhat Not Too Not At All
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Percentage of Workers Calculating Retirement Needs Up Slightly in 2013, Remains Steady Over Past DecadeHave you (or your spouse) tried to figure out how much money you will need to have saved by the time you retire so that you can live comfortably in retirement? (2013 Workers n=1003, percent yes)
32%31%32%29%
33%
42%45%
51%
39%
32%37%
48%53%
44%38%
43%42%42%42%43%47%
44%46%42%42%
46%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Respondent Respondent and/or Spouse
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1993-2013 Retirement Confidence Surveys.
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5% 3%7% 7% 7% 8%
Many Workers Guess to Determine Savings Needed for Comfortable RetirementHow did you (or your spouse) determine this amount? Did you…? (2013 Workers giving an amount needed for retirement n=898) (Top mentions, multiple responses accepted)
7% 11% 9% 9% 9% 8%
2005 2006 2007 2008 2009 2010 2011 2012 2013
18% 19% 19% 18%21%
18%
21% 17% 19% 26% 21% 18%
46% 44% 43% 44% 42%45%
2005 2006 2007 2008 2009 2010 2011 2012 2013
Guess
Ask a financial advisor
Do your own estimate
Read or hear that is how much needed
Use an online calculator
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1993-2013 Retirement Confidence Surveys.
3B-6
The Likelihood of Doing a Calculation Increases With Household IncomeHave you (or your spouse) tried to figure out how much money you will need to have saved by the time you retire so that you can live comfortably in retirement? (2013 Workers, percent yes)
25%
45%
63%
Workers withHousehold Income
<$35,000
Workers withHousehold Income$35,000-$74,999
Workers withHousehold Income
$75,000+
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1993-2013 Retirement Confidence Surveys.
3B-7
Measuring the Retirement Expectations “Gap”1. Use the RCS to determine the household’s
• Expected retirement age• Income and demographic characteristics• Response to: How much do you think you (and your spouse) will need to accumulate in total
by the time you retire so that you can live comfortably in retirement? • NB: this is NOT an analysis of the probability that they will actually meet that savings
goal by their expected retirement age!
2. Project income out to expected retirement age3. Compute expected Social Security benefits at that age
• Includes early and late retirement modifications
4. Compute annual income that would be provided by their savings at their expected retirement age if they purchased a real annuity
5. Add this amount with expected Social Security benefits6. Compare that annual retirement income with 75 percent of the projected
income immediately prior to retirement7. Compute the “gap” (if any)
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Probability of failing to have enough savings to generate a combined real replacement rate of 75 percent by type of coverage (defined benefit accruals not taken into account)
nonedefined
contributiononly
defined benefitonly both
Series 1 47% 40% 60% 71%
0%10%20%30%40%50%60%70%80%
Removed from further analysis
Source: EBRI Retirement Security Projection Model, version 1860
3B-9
Probability of failing to have enough savings to generate a combined real replacement rate of 75 percent by expected retirement age (filters out all households with a defined benefit plan)
62 63 64 65 66 67 68 69 70 71 72 75Series 1 83% 88% 60% 57% 69% 52% 56% 50% 38% 50% 36% 19%
0%10%20%30%40%50%60%70%80%90%
100%
Source: EBRI Retirement Security Projection Model, version 1860
3B-10
Probability of failing to have enough savings to generate a combined real replacement rate of 75 percent by age (filters out all households with a defined benefit plan)
25-34 35-44 45-54 55-64Series 1 45% 44% 52% 59%
0%
10%
20%
30%
40%
50%
60%
70%
Source: EBRI Retirement Security Projection Model, version 1860
3B-11
Probability of failing to have enough savings to generate a combined real replacement rate of 75 percent by household income per person (filters out all households with a defined benefit plan)
<20k 20k-30k 30k-50k 50k-65k >65kSeries 1 13% 50% 52% 67% 71%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Source: EBRI Retirement Security Projection Model, version 1860
3B-12
Probability of failing to have enough savings to generate a combined real replacement rate of 75 percent by family status (filters out all households with a defined benefit plan)
married not married, livingwith a partner
divorced orseparated
single, nevermarried
Series 1 55% 58% 44% 42%
0%
10%
20%
30%
40%
50%
60%
70%
Source: EBRI Retirement Security Projection Model, version 1860
3B-13
Probability of failing to have enough savings to generate a combined real replacement rate of 75 percent by educational level (filters out all households with a defined benefit plan)
some highschool or
less
high schoolgrad
trade orvocational
schoolsome college
4-yearcollegedegree
graduate orprofessional
degreeSeries 1 50% 53% 54% 49% 48% 57%
0%
10%
20%
30%
40%
50%
60%
Source: EBRI Retirement Security Projection Model, version 1860
3B-14
Probability of failing to have enough savings to generate a combined real replacement rate of 75 percent by type of employer (filters out all households with a defined benefit plan)
largecorporation
mediumsized
business
smallbusiness federal govt state or local
govt educational
Series 1 54% 52% 41% 68% 65% 51%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Source: EBRI Retirement Security Projection Model, version 1860
3B-15
How to measure the effectiveness of various sources of information with respect to retirement expectations?
• Unfortunately it is much more difficult than just looking at the previous types of graphs
• Different types of households have different tendencies when it comes to:
• Using an online calculator• Seeking the assistance of a financial advisor• Simply “guessing”
• Also want something more advanced than merely determining whether or not a household sets a goal sufficient to meet a 75 percent replacement rate
• Uses EBRI Retirement Security Projection Model® to simulate 1,000 different alternative retirement scenarios for each household
• Determines the percentage of times they run “short” of money in retirement
Source: Jack VanDerhei and Nevin Adams (March 2013), “A Little Help: The Impact of On-line Calculators and Financial Advisors on Setting Adequate Retirement-Savings Targets: Evidence from the 2013 Retirement Confidence Survey,” EBRI Notes
3B-16
family single female single male lowest 14.6% 18.1% 18.2%second 18.0% 17.6% 17.3%third 16.8% 12.0% 11.4%highest 14.7% 9.3% 8.7%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Figure DEstimated Percentage-point Increase in Modified RRRs* for 2013 RCS
Respondents Who Used an Online Calculator to Determine the Savings Target, by relative income quartile and gender/family status
(only those expecting to retire at age 65 and without those expecting
Source: EBRI Retirement Security Projection Model® version 1685.* The modified Retirement Readiness Rating is simulated given the 2013 RCS respondents' age, income, gender, and family status and their response to: "amount you think you (and your spouse) will need to accumulate in total by the time you retire so that you can live comfortably in retirement."
3B-17
family single female single male lowest 9.1% 12.5% 12.6%second 12.3% 12.4% 12.2%third 12.4% 9.1% 8.6%highest 11.0% 6.7% 6.3%
0%
2%
4%
6%
8%
10%
12%
14%
Figure EEstimated Percentage-point Increase in Modified RRRs* for 2013 RCS
Respondents Who Asked a Financial Advisor to Determine the Savings Target (only those expecting to retire at age 65 and without those expecting
defined benefit plans to be a major source of retirement income)
Source: EBRI Retirement Security Projection Model® version 1685.* The modified Retirement Readiness Rating is simulated given the 2013 RCS respondents' age, income, gender, and family status and their response to: "amount you think you (and your spouse) will need to accumulate in total by the time you retire so that you can live comfortably in retirement."
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family single female single male lowest -5.7% -8.1% -8.3%second -8.0% -8.7% -8.6%third -8.6% -6.8% -6.4%highest -7.8% -5.3% -4.9%
-10%
-9%
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
Figure F
Source: EBRI Retirement Security Projection Model® version 1685.* The modified Retirement Readiness Rating is simulated given the 2013 RCS respondents' age, income, gender, and family status and their response to: "amount you think you (and your spouse) will need to accumulate in total by the time you retire so that you can live comfortably in retirement."
Estimated Percentage-point Increase in Modified RRRs* for 2013 RCS Respondents Who Guessed to Determine Their Savings Target
(only those expecting to retire at age 65 and without those expecting defined benefit plans to be a major source of retirement income)
3B-19
WHAT ARE THE IMPLICATIONS OF INACCURATE ASSESSMENTS FOR EMPLOYERS, WORKERS AND PUBLIC POLICY?
3B-20
Employees Delaying Retirement
• According to the results of the “Fourth Plan Sponsor Attitudes Survey” from Fidelity Investments: • Nearly two-thirds (66%) of plan sponsors reported that “some, quite a
few, or all employees” are delaying retirement because they are not prepared;
• More than half (57%) of plan sponsors say they do not believe their participants are saving enough for retirement; and
• Plan sponsors are not confident they fully understand their fiduciary responsibilities, with 42% believing they need help in this area.
Source:http://www.plansponsor.com/Sponsors_See_Many_Employees_Delaying_Retirement.aspx
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3%6%
14%
25%
10%
26%
7% 8%
21%16%
32%
11%8% 6%
1% 1%
Under 55 55-59 60-64 65 66-69 70 or older Neverretire
Don't know
Workers (n=1003) Retirees (n=251)
One-quarter of Workers Expect to Retire at Age 70 or Later; 7 in 10 Retirees Retired Before Age 65Realistically, at what age do you expect to retire?How old were you when you retired?
MedianWorkers 65Retirees 62
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1993-2013 Retirement Confidence Surveys.
3B-22
Nearly Half of Retirees Indicate Their Retirement Occurred Earlier Than PlannedDid you retire earlier than you planned, later than you planned, or about when you planned? (2013 Retirees n=251)
52%
40%
48%49%45%
40%36%
39%45%
39% 37%40%38% 37%
51%47%
41%45%
50%47%
43%
53%
42%39%
42%
48%52%
48%47%48%52%50%52%
55%
40% 42%
49%46%
37%43%
3% 3%7% 7% 5% 5% 6% 5% 5% 5% 6% 5% 5% 5% 4%
7%4% 3%
9%6%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Earlier Than Planned About When Planned Later Than Planned
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1993-2013 Retirement Confidence Surveys.
3B-23
People Retire Early for a Variety of Reasons, Though Over Half of Retirees Cite Health Problems as a FactorWhy did you retire earlier than you had planned? (2013 Retirees retiring earlier than planned n=127, percent yes)
55%
32%
23%
20%
20%
19%
9%
You had a health problem or disability
You could afford to retire earlier
You had to care for a spouse or another familymember
Changes at your company
You had another work-related reason
You wanted to do something else
Changes in the skills required for your job
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1993-2013 Retirement Confidence Surveys.
3B-24
Workers Are Much More Likely to Think They Will Work in Retirement Than Retirees Actually WorkedDo you think you will do any work for pay after you retire? Have you worked for pay since you retired? (2013 Workers expecting to retire n=931, Retirees n=251)
56%
66% 63% 61%66%
70% 68% 66% 67% 66% 63%72% 70%
74%70% 69%
22%27%
22%26% 24%
28%32%
26% 27%
37%
25%34%
23% 23%27% 25%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Workers Retirees
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1993-2013 Retirement Confidence Surveys.
3B-25
Few Retirees Who Haven’t Already Worked in Retirement Expect to Return to Work
Realistically, how likely do you think you are to work for pay some time in the future? (2013 Retirees not working for pay in retirement n=179)
4% 6%
22%
66%
2%8%
19%
68%
2%8%
21%
67%
4% 6%
19%
71%
Very Likely Somewhat Likely Not Too Likely Not at All Likely
2010 2011 2012 2013
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1993-2013 Retirement Confidence Surveys.
3B-26