Employees think they’re on track for retirement. Here’s where they’re wrong
Most Americans believe they’re on track for a comfortable retirement, according to a study from Natixis Investment Managers out Thursday. They feel they’re saving enough to enjoy the life they envision in their golden years.
For the most part, however, they’re wrong, says Ed Farrington, executive vice president of U.S. distribution at the asset manager.
In truth, not only are most workers not saving enough, but the amount they’ve salted away becomes more worrying as they age.
That’s not to say all hope is lost. Far from it. Farrington is encouraged by the recent moves in Congress to make retirement plans easier for small businesses to offer. Moreover, he says there are steps that employees and employers can take, mostly around education, which would further help this situation.
First, a few numbers from the survey: More than two-thirds of Americans were generally positive about their financial position, indicating that they either were comfortable, or will have saved enough by retirement. Only 13% said they don’t think they’ll ever be able to retire. The remaining 20% in the middle expects to struggle to save enough.
And despite some of the generational differences, there also are some strong common threads, Farrington says. Namely, no one is saving enough, regardless of age. And many will have to work longer than they expect. In the case of millennials, they’re foreseeing a retirement at 61, which he says is not realistic for most. “Some of them will live to 100,” he says.
The general lack of financial literacy has been festering for decades. When the main retirement strategy in the U.S. shifted from defined benefit to defined contribution in the 1980s and early 1990s, there wasn’t enough education about the ramifications. And to a large extent, that problem still lingers, he says.
Indeed, in a case of knowing what you don’t know, 64% of people in their employer-sponsored plan say they need more education from their employers or their plans, according to the survey.
When handled appropriately, defined contribution plans can work just fine, Farrington says. But they need to be more broadly available and feature auto-enrollment, auto-escalation and the proper incentives, like matching contributions. In fact, for the average person, simply being auto-enrolled into a target-date fund can go a long way toward preparing them for retirement, he notes.
As for a generational breakout, millennials on average expect they’ll need $822,800 to retire and they’ve saved 10% of that goal; Gen Xers expect to need $980,500 and they’ve saved 17%; baby boomers have saved 30% of their $1.02 million goal.
Boomers need the most help, he says, but they can also go a long way toward helping themselves. For instance, 64% of them aren’t taking advantage of the catch-up contributions that are available, according to the survey.
Helping millennials would provide the biggest social benefit, Farrington says. One lesson that they need to hear (besides saving more and working longer) is to not let their student loans become a reason to stave off saving for retirement. According to the survey, 28% of millennials who are in a 401(k) say that student loans are preventing them from saving more.
To be sure, they’re managing more student debt than any previous generation, Farrington says, but they also have decades of time on their side to let their retirement contributions grow. This is too good an opportunity to squander, he says. At least on this count, they should heed the boomers, who say they wish they’d saved more earlier, Farrington said.