Workers and retirees know what they should be doing to prepare for retirement but when it comes to action, neither group is prepared, according to the Voya Retire Ready Index devised by Voya Financial, Inc. and based on two surveys conducted by Greenwald & Associates.
The surveys, conducted in July 2014, gauged how ready both groups were for retirement by looking at the three main components of retirement preparation: knowledge, planning and having.
The survey gauged worker attitudes and behaviors about the financial steps they had already taken to prepare for retirement, what they anticipated doing to prepare in the future and their current expectations about being adequately prepared, Voya said. Retirees were asked about their attitudes and behaviors during their working years, as they entered into and continue to live in retirement and how those steps influenced their quality of life and satisfaction with their current retirement lifestyle.
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Planning was the most significant hurdle for both groups and the area with the most opportunity for improvement, according to Voya Financial.
The Voya Retire Ready Index looked at how each group scored on the survey and then examined the attributes of those who scored at the highest levels to learn more about how they did it.
The study found that some workers and retirees were more proactive and better prepared for retirement than the others who were surveyed. Of those who scored highest, nearly two-thirds of the workers had a written budget and nearly half had a formal written financial plan. Of retirees, 68% had a financial plan and 81% worked closely with a financial professional, the study found.
Eighty-five percent of workers and 51% of retirees reported owning more than $100,000 in life insurance coverage and 82% of workers and 78% of retirees said they had a specific strategy for investing their assets.
Nearly all of the retirees in this high scoring group97%were happy with their financial security and 81% retired because they wanted to. Nearly 96% of workers in this group said they were somewhat or very confident in how well they were prepared for retirement.
According to the report, retirees scored higher than workers in all three areas surveyed but they still had room for improvement. Retirees have had more time to learn about, save and plan for retirement than the average worker, which could account for the higher scores on the index, the report found.
The challenge, however, is that the opportunities for retirees to change their outcomes are typically more limited than those for workers. Therefore, mid-range scores for retirees may pose even greater concern for retirees than the numbers indicate, the report said.
Retirees scored a 5.5 out of 10, while workers scored 4.1 out of 10 on the index, meaning neither group was adequately prepared to continue their current lifestyle in retirement.
Both groups surveyed have a relatively good understanding of certain financial concepts and rules, but lower planning and having scores suggest they did not or could not put that knowledge into action to achieve higher levels of readiness, the report found. The good news is that many workers have time to change their behavior.
Both groups surveyed agreed that calculating the amount of monthly income they will have in retirement, based on their current level of savings, would boost their retirement confidence. Using self-directed budgeting and financial planning tools would also help them feel more confident, the survey found.
As the retirement landscape evolves, individuals have taken on greater responsibility to plan and save so they can reach their future retirement readiness goals, said James Nichols, head of retirement income and advice strategy for Voya Financial. In order to better understand the dynamics that drive greater retirement readiness, Voya developed an approach that measures how Americans are preparing for and experiencing this important financial milestone. While its clear that individuals can improve upon all aspects of their retirement readiness, our study suggests that planning is an important leverand an area where even more support is needed.
He added that the disconnect between what people say could improve their financial security and what they actually do is caused by a number of factors, including inertia, anxiety, competing financial priorities and the fact that many view retirement as a distant concern.
Voya Financial is made up of retirement, investment and insurance businesses that serve the financial needs of about 13 million individual and institutional customers in the United States.
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