The retirement outlook for Americans is bleak.
A Gallup poll this week found workers' expectations for a comfortable retirement are the most pessimistic in over a decade. Almost 6 in 10 (57%) of people who have not yet retired expect to run into a deficit.
That's a significant increase from 52% which was dismal last year, 47% in 2021 and 43% before the pandemic. On the other hand, 77% of retirees say they have enough money to live comfortably – which is in line with last year's assessment.
The difference in outlook between working Americans and retirees also extends to expectations about when people will retire, whether they will work, and what are the key sources of income for retirement. The latter are expanding workers to offset their bleak prospects.
“Expectations for a financially comfortable retirement among non-retirees in the US are at their worst in more than a decade,” Megan Brenan, senior editor at Gallup, told Yahoo Finance. “Over the past two years, high inflation and fears of a recession have meant less than half of non-retirees are optimistic about their retirement.”
According to the new poll, more than 42% of working Americans today are very concerned about funding their retirement, and more than 7 in 10 are “at least moderately concerned about funding their retirement.”
The results of this year's survey are based on telephone interviews conducted April 3-25 with 1,013 adults as part of the annual Business and Personal Finance Survey.
The Gallup results align with a recent survey by the Employee Benefit Research Institute (EBRI) and Greenwald Research, which found that Americans' confidence about whether they have enough money for a comfortable retirement has seen its biggest decline in 15 years .
“The most significant finding is the decline in confidence in retirement, which has not been seen since 2007-2008 and 2008-2009 when the economy was in recession,” Craig Copeland, director of wealth benefits research at EBRI, previously told Yahoo Finance.
“Americans are reacting the same as they would during a recession,” he added. “The current economy is not the best, but it's certainly not in recession.”
According to Gallup's study, Americans' bleak prospects for retirement also vary greatly across demographics.
“A majority of some demographics — including those on higher incomes, college graduates and young adults under 30 — have a positive outlook for retirement,” Brennan said.
Half of the men surveyed compared to about a third (36%) of the women said they thought they had enough money to retire comfortably. And among Americans between the ages of 18 and 29, more than half were confident they would be fine, but fewer than 4 in 10 (39%) of workers nearing retirement — those aged 59-64 — indicated that they felt they were financially secure.
High-income Americans and college graduates were also reasonably optimistic about their chances of making up a savings shortfall. More than half of college graduates believe they will have enough money to live comfortably, as do nearly two-thirds of those with the highest incomes.
Workers' expectations for other aspects of retirement also differ significantly from the experiences of current retirees.
For example, the gap between expected retirement and retirement age is large. The median age at which non-retirees are expected to retire is 66, while the actual median age at which retirees report retirement is 62.
One in four (39%) workers expects to retire by age 65, Gallup data shows. Just under one in three (32%) say they will retire before the age of 65.
There is also a false expectation by workers that their work will be paid in retirement. While 20% of workers plan to earn a paycheck in their retirement years, according to Gallup data, only a small fraction (3%) of retirees do.
There are many reasons for this frustrated desire: health issues that prevent people from staying in the job, to caring responsibilities to anti-aging attitudes by employers that make it harder to get hired.
After all, employees have different ideas about where their income should come from when they retire.
Only 34% of workers expect Social Security to be an important source of income in retirement, compared to 59% of retirees who say so. This disparity may reflect concerns about the future of social security.
According to a recent annual report, social security reserves are expected to be exhausted by 2033. At that point, the program will only be able to pay out 77% of benefits to seniors. The impact would be severe for many workers who plan to rely on Social Security for much of their retirement income.
Now, 48% of those still working expect to depend on retirement accounts like a 401(k) or IRA during their golden years, compared to 27% of retirees who think so.
That could be why working Americans seem to be increasing their savings rates.
This week Fidelity released its analysis of 2023 retirement savings trends and found that overall 401(k) savings rates have increased.
The total saving rate for the first quarter, which reflects a combination of 401(k) contributions from employers and employees, improved to 14% (compared to 13.7% in the fourth quarter of last year), turning towards savings Beginning of the market back volatility at the beginning of 2022.
In-work baby boomers save the most of any age group (16.7% vs. 16.5% last quarter), and Generation Z's saving rate has also increased slightly (10.5% vs. 10.2% last quarter). The average 401(k) balance for baby boomers is now $215,000; $145,000 for Generation X; and $44,900 for millennials, according to Fidelity's breakdown.
“This quarter's data shows that baby boomers are saving a lot,” Michael Shamrell, vice president of workplace thought at Fidelity, told Yahoo Finance. “Additionally, baby boomers are taking advantage of the IRS' ‘catch-up' payments, which allow them to save additional money in their 401(k) account beyond the normal limit, which can help them get closer to their retirement savings goals.” .”
One explanation for the rise in saving rates is a feature that many employer pension plans are now offering, which allows savers to automatically increase their contributions each year.
The purpose of automatic escalation is to periodically increase your contribution rate to your 401(k) plan. For example, if you set the automatic rate of increase to 1% per year, your contribution rate will increase by 1% each year.
“The increase in account contributions is due to more participants using the auto-increase feature in their 401(k) plan,” Shamrell said. “In Q1 2023, 70% of employer plans offered an auto-increase feature and 17.4% of employees increased their contribution rate – of that percentage, approximately two-thirds was due to the auto-increase – the other third was “proactive” by the employee .”
Kerry Hannon is a senior reporter and columnist at Yahoo Finance. She is a workplace futurist, career and retirement strategist, and the author of 14 books, including In Control at 50+: How to Succeed in The New Work of Work and Never Too Old To Get Rich. Follow her on Twitter @kerryhannon.
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