Is employees’ growing retirement confidence misguided?

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The number of workers who believe they will have enough saved up for a comfortable retirement rose in 2018 from 2017 — but that confidence may be misplaced.

That’s the troublesome conclusion from new research from the Employee Benefit Research Institute, which found that while two-thirds of employees say they are confident in their ability to retire comfortably, when asked specifics — like whether or not they know how much money they will need for a secure retirement and how much they will need for healthcare expenses in retirement — their confidence slips.

Just having access to a workplace defined contribution plan makes people more confident in their ability to retire someday, according to EBRI, and eight in 10 workers say that a DC plan will be their major or a minor source of income for them in retirement.

According to EBRI, “some workers may be guilty of false confidence and data suggests they may be making some faulty assumptions.”

Workers still expect to work longer than they actually do in retirement, and two out of three workers say they expect to help pay for their retirement by working in retirement. But, according to EBRI, the reality is only one in four retirees claim that for working is a source of income them.

Meanwhile, debt continues to be a huge problem for workers who say it negatively impacts their ability to save for retirement.

More than half (59%) of survey respondents said that preparing for retirement stresses them out, and the groups most likely to be stressed out are those with lower incomes, those where debt is a major problem and those who haven’t tried to calculate how much they need to save for retirement, explains Craig Copeland, a senior research associate at EBRI and co-author of the organization’s 2018 Retirement Confidence Survey.

Thirty-eight percent of workers say they have tried to calculate how much they need to save for retirement but a whopping 62% said they haven’t done it yet.

“People closer to retirement were more likely to have calculated how much they need to save for retirement,” Copeland says. Seventy-three percent of those who were less than five years away from retirement said they had made the calculation, compared to only 44% for those who are six or more years away from retirement.

It is good news so many people are doing this calculation, Copeland says, but it is concerning that they are doing it so close to retirement.

“It doesn’t give them a planning horizon to reach that number,” he says. “It is good that they have done it but there’s not much time to make it up if they notice they have fallen behind.”

Sixty percent of respondents say they are very confident or somewhat confident they are doing a good job financially preparing for retirement, but only 14% were very confident, according to EBRI.

Men were more confident than women and those with a DC plan were more confident than those without access to a workplace plan.

Not surprisingly, the majority of individuals who said they had saved $1,000 or less for retirement were those without access to a workplace retirement plan. Only 10% of people who said they have access to a workplace plan had less than $1,000 saved up for retirement.

See also: 7 easy ways to encourage employees to save more for retirement

On the other end of the spectrum, 49% of people with a DC plan had saved $250,000 or more for retirement while virtually no one without a workplace plan had that amount saved up for retirement.

“We see the importance of having a retirement plan for those people to have savings,” Copeland says.

Since so many people expressed stress or concern about saving for retirement, the survey asked them whether certain workplace educational programs or financial wellbeing programs would be helpful to them.

Just one in five workers and four in 10 retirees say they have calculated how much they will need to cover health care expenses in retirement and 72% of workers and 57% of retirees say it would be very helpful or somewhat helpful if their workplace offered education on planning for health care expenses in retirement. A similar amount of workers and retirees said they would find it helpful if employers helped them figure out how much they needed for a secure retirement and how much they could anticipate spending each month in retirement.

Since having access to a defined contribution plan is so essential for worker retirement confidence, the survey explored ways to improve the number of people not only participating in their workplace plan but also increasing what they contribute to those plans.

Lisa Greenwald, co-author of the report and executive vice president at Greenwald & Associates, says that automatic deduction or automatic enrollment with a higher default rate is a good place to start.

See also: Employers adding 401(k) auto-enrollment in record numbers

EBRI tested out three scenarios: auto-enrollment with a default contribution of 3%, 6% and 10%. What it found is that the pushback when the default rate goes up is not as big as expected.

Of workers who are employed but not currently saving for retirement, 60% said they would increase their saving for retirement if their employer automatically deducted 3% from their paychecks and put it into a savings plan for them, Greenwald says. When that figure was bumped up to 6%, 53% said they would be very likely or somewhat likely to save more for retirement if their employer automatically deducted 6% from their paycheck. That figure dropped to 46% for an automatic deduction of 10%.

“That’s still nearly half,” Greenwald says. “So automatic enrollment with perhaps a higher than customary default deferral rate may be one way to increase participation in the plan and increase savings overall.”

An employer matching contribution also has an impact on how much people will save for retirement. Fifty-six percent of respondents said they would increase their retirement plan contribution if their employer offered a matching contribution; 18% said the same if their employer offered a fixed contribution to their account and 7% said they would if their employer offered both options. Only 12% of respondents said they wouldn’t increase their retirement contribution if their employer offered a matching contribution.

If the matching contribution was set low, employees would only increase their contribution to achieve that matching contribution. If the match was set higher, employees would boost their own contribution to receive the match.

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Retirement income Retirement planning Retirement benefits Retirement readiness Financial stress Financial literacy Healthcare costs