The Reality of Post-Recession Retirement

October 12, 2010

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As employees' savings plunged throughout the economic crisis of the last few years, so did their confidence in retiring comfortably. Many workers are ill-prepared to meet their retirement needs.

The combined value of U.S. employer-sponsored retirement plans in eight industries, as measured by the amount of pay employers are contributing, declined from 7.88 percent of pay to 6.36 percent for the 10-year period ended Dec. 31, 2008, according to analysis by Towers Watson. The overall decline in total retirement benefits was mostly due to a 53 percent drop in the value of defined benefits.

One of the largest declines in total retirement benefits from 1998 to 2008 occurred in the manufacturing industry — a 29 percent drop, from 8.95 percent to 6.35 percent — second only to the retail and wholesale sectors.

The rising number of employees planning to delay their retirement could create workforce planning issues for employers as they look to engage both older and younger employees.

However, the economic crisis has largely compelled employees to rethink their attitudes toward retirement-related risk, as well.

According to a separate, two-part report on retirement attitudes from Towers Watson recently, older workers' confidence levels remain well below those prior to the financial crisis. The survey, conducted in May and June of 2010, found that despite a modest rebound over the past year, only about 50 percent of older workers (aged 50-64) are "very confident" about having enough resources to live comfortably five years into retirement. In 2007, before the financial crisis, 63 percent of older workers were "very confident".

Only 9 percent of older workers believe they will have enough resources to live comfortably throughout retirement, with their assets lasting through 25 years of retirement.

Currently, 39 percent of older workers are concerned that their employer will reduce the benefits they earn in the future, while 68 percent of younger workers (under 40) are concerned their employer will reduce future benefits.

More than half (55 percent) of all respondents have seen significant declines in their retirement savings over the last two years. Only 33 percent of employees are content with their financial situation today.

Approximately 40 percent of employees plan to retire later than they did two years ago. Health-care coverage and costs are the reasons most cited for delayed retirement, particularly among older workers.

At the same time, fewer workers report that they and/or their spouse have saved for retirement (69 percent), and only 60 percent are currently saving for retirement, according to the 20th annual Retirement Confidence Survey, a joint effort by the Employee Benefit Research Institute and Mathew Greenwald & Associates. Meanwhile, an increased percentage of all workers say they have virtually no savings and investments: 27 percent of workers providing this type of information say they have less than $1,000 in savings (up from 20 percent in 2009).

Scarier still, many workers are clueless about savings goals and continue to be unaware of how much they need to save for retirement. Less than half of workers (46 percent) report they and/or their spouse have tried to calculate how much money they will need to have saved for a comfortable retirement by the time they retire.

"Many employees simply don't understand the substantial role that time and savings rate play in helping them to meet their retirement needs," according to Hewitt Associates, which estimates that employees will need about 15.7 times pay at retirement (on average) to maintain their pre-retirement living standards. About 4.7 times pay will be provided by social security, so employees will need to come up with about 11 times pay from personal savings and employer-provided retirement benefits.

Whether young or old, planning ahead for retirement has never been more important.

For information and resources about saving for retirement and the tools to get started, visit the U.S. Employee Benefits Security Administration's Retirement Savings Education Campaign and MarketWatch's recent Seven Steps to a Sound Retirement.

To avoid common retirement-planning mistakes, see Charles Schwab's recent Five Big Lies of Retirement Planning and SmartMoney.com's 4 Costly Retirement Planning Mistakes.

Earlier

Protect Your Retirement in a Turbulent Economy

Health Benefits of Working After Retirement

Couples Split on Retirement Planning

Employers Adapt to Shifting Retirement Landscape

Relax into Retirement

Resources

Retirement Benefits for U.S. Workers Declined 19% Between 1998 and 2008... Towers Watson, July 22, 2010

The Top 10 Risks for Business Ernst & Young, July 2010

Retirement Attitudes - Part I: Confidence in Retirement Towers Watson, September 2010

Retirement Attitudes - Part II: Employee Attitudes Toward Risk Towers Watson, October 2010

2010 Retirement Confidence Survey The Employee Benefit Research Institute and Mathew Greenwald & Associates, March 2010

Addressing the Employee Retirement Gap Hewitt Associates, June 2010

Retirement Savings Education Campaign Employee Benefits Security Administration (U.S. Department of Labor)

Seven Steps to a Sound Retirement by Robert Powell MarketWatch, Oct. 7, 2010

Segmenting the Middle Market: Retirement Risks and Solutions Phase II Report Prepared by Noel Abkemeier The Society of Actuaries, September 2010

Five Big Lies of Retirement Planning by Rande Spiegelman Charles Schwab Center for Financial Research, Sept. 7, 2010

4 Costly Retirement Planning Mistakes by Catey Hill SmartMoney.com, Sept. 24, 2010

UBS on Retirement Planning Now UBS Financial Services Inc., October 2009

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