U.S workers deluding themselves over retirement

Apr 05 2006 by Nic Paton Print This Article

Most American workers believe they will be able to retire comfortably, but are deluding themselves because they are not saving nearly enough, according to a new study.

The Employee Benefit Research Institute's annual retirement confidence survey has found that about 68 per cent of workers are confident about having adequate funds for a comfortable retirement, up slightly from the 65 per cent recorded last year.

Yet more than half of all workers say they have saved less than $25,000 towards their retirement.

Even among workers 55 and older, more than four out 10 had retirement savings under $25,000.

"Overconfidence is the word that comes to mind," said Jack VanDerhei, co-author of the study.

The poor savings performance was especially troubling because it came as many of the nation's employers were eliminating their defined benefit pensions plans.

Many companies were also eliminating retiree health care coverage or asking retirees to contribute more for it.

"It's clear that people currently working should factor into their retirement planning the long-term trend away from traditional defined benefit pensions," VanDerhei said. "That means people need to be saving more than they are."

A little more optimistically, more than 70 per cent of workers said they or their spouses had at least saved something toward retirement, said EBRI.

While many had meagre savings, others were doing quite well at accumulating retirement nest eggs, the study found.

While more than half of workers had less than $25,000 set aside, 12 per cent had $25,000 to $49,999, the same percentage had $50,000 to $99,999; 11 per cent had $100,000 to $249,999; and 12 per cent had $250,000 or more.

As would be expected, older workers generally had more set aside than younger workers, with 12 per cent of those 55 and older reporting account balances of $100,000 to $249,999 and 26 per cent $250,000 and up.

People would save more if they took the time to project what their costs in retirement are likely to be, said VanDerhei.

But just 42 per cent of workers said they had done such a calculation.

"Some people are absolutely clueless about this and frozen into inactivity as a result. They really should find a fee-based professional to help them out. It's going to cost a couple of hundred dollars, but you'll make that amount up many times in the future," he said.

Nearly 70 per cent of workers said they were either strongly or somewhat favourable to automatic enrolment into pension plans for new workers, and almost the same percentage favoured automatic increases in employee contributions.