Each year for its Retirement Confidence Survey, the Employee Benefit Research Institute (EBRI) surveys 1,000 workers and 1,000 retirees to assess how confident they are in their ability to afford a comfortable retirement.
In 2019, 82% of retirees reported feeling "very" or "somewhat" confident, compared with 67% of workers. A closer look at some of the survey results reveals various lessons today's workers can learn from current retirees.
Current sources of retiree income
Let's start with a breakdown of the percentage of retirees who said the following resources provide at least a minor source of income:
Lesson 1: Don't count on work-related earnings
Perhaps the most striking percentage in the chart above is the last one: That just one in four retirees works for pay. By contrast, 74% of today's workers expect work-related earnings to be at least a minor source of income in retirement.
Lesson 2: Have realistic retirement age expectations
Building upon Lesson 1, workers may want to hope for the best but prepare for the worst when estimating their retirement age, as the survey consistently finds a big gap between workers’ expectations and reality.
Workers said they expect to retire at the median age of 65, whereas retirees said they actually retired at a median age of 62. Three years can make a big difference when it comes to figuring out how much workers need to accumulate by their first year of retirement.
Moreover, 34% of workers reported that they plan to retire when they were 70 or older (or not at all), while just 6% of current retirees actually retired at this age. In fact, almost 40% of retirees said they retired before age 60, often due to a health issue or layoff.
Lesson 3: Income is largely a result of individual savings efforts
Even though 64% of current retirees have defined benefit or pension plans, an even larger percentage say they rely on current savings and investments, and more than half rely on income from IRAs and/or workplace plans. Current workers are much less likely to have defined benefit or pension plans, so it is even more important that they focus on their own savings efforts.
Fortunately, workers appear to be recognizing this fact, as 82% said they expect their workplace retirement savings plan to be a source of income in retirement, with more than half saying they expect employer plans to play a "major" role.
Lesson 4: Some expenses, particularly health care, may be higher than expected
While most retirees said their expenses were "about the same" or "lower than expected," approximately a third said their overall expenses were higher than anticipated. Nearly four out of 10 said health care or dental expenses were higher.
Workers may want to take heed from this data and calculate a savings goal that accounts specifically for health-care expenses. They may also want to familiarize themselves with what Medicare does and does not cover and think strategically about a health savings account if they have the opportunity to utilize one at work.
Lesson 5: Keep debt under control
Just 26% of retirees indicated that debt is a problem, while 60% of workers said this is the case for them. Unfortunately, debt can hinder retirement savings success: seven in 10 workers reported that their non-mortgage debt has affected their ability to save for retirement. Also consider that 32% of workers with a major debt problem were not at all confident about having enough money to live comfortably in retirement, compared with just 5% of workers who don't have a debt problem.
As part of their overall financial strategy, workers may want to develop a plan to pay down as much debt as possible prior to retirement.
Creating a retirement action plan
Learning from these lessons is one thing; dealing with their implications is another. If this task seems overwhelming, an experienced financial advisor can work with you to develop an integrated financial plan that addresses your unique retirement aspirations and fiscal realities.
Chris Gullotti is a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 508.598.1082 or [email protected]
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances.