Americans' confidence in their ability to retire is hovering at the lowest level in two decades, according to a survey released Tuesday by the Employee Benefit Research Institute. Just 14 percent of respondents reported being "very confident" that they will have enough money to live comfortably in retirement –- down from a peak of 27 percent in 2007.
Just 58 percent of workers said that they or their spouses are saving for retirement -- a decline from nearly two-thirds in 2009. The survey, conducted in January, was based on interviews with 1,003 workers and 259 retirees.
"There was some short-term impact to family income that caused them to reassess whether they could continue to save or save at the rates they had been," said Jack Vanderhei, the institute's research director and co-author of the study. "People had just gotten their jobs back or their spouse had lost a job." Others stopped contributing to their 401(k) plans when their employers temporarily suspended matching funds, he added.
Also, workers are continuing to postpone their retirement date: Some 37 percent expected to retire after age 65 –- a rise from from 11 percent in 1991. But these are not the wealthy "Neveretirees," as Newsweek has called those too busy pursuing a passion to call it quits (think Paul McCartney and Warren Buffet).
Respondents are struggling amid job uncertainty and disappointing investment returns: Just a quarter of respondents said they feel "very confident" that they'll have a paid gig for as long as they need it. And 62 percent said they carry too much debt. A mere 16 percent reported being "very confident" that their investments will appreciate in value.
But "working forever" is a terribly risky backup plan, Vanderhei said. "Fifty percent of current retirees retired prior to when they would have because of their health status, the health status of a family member or [a lack of] job opportunities," he said. "That's the highest it's ever been; it used to be in the 40 percent range."
"If you realize you are not on track for the retirement you want, the choice is to start saving more today or wait and see what happens when you turn 65," Vanderhei said. "But it's a really risky proposition to do the latter because 1 in 2 people was forced to retire before they planned," according to this year's survey.
Some 60 percent of workers reported that the total value of their household's savings and investments is less than $25,000, excluding the value of their primary home and any defined benefit plans. The annual survey, which has been conducted for 22 years, has always excluded those factors. And in recent years, at least, there has been a good reason to do so. Home values have plummeted: The average amount of equity people had in their homes fell to 38 percent in the first quarter of 2011, from 61 percent in the same period a decade earlier, the Federal Reserve reported. And only 23 percent of full-time workers in private industry have access to a traditional pension, according to the Bureau of Labor Statistics.
"We've spent a good long time trying to encourage people to save," said Assistant U.S. Secretary of Labor Phyllis Borzi, who runs the Employee Benefits Security Administration, which regulates all private employer-sponsored benefit plans such as 401(k)s. "People have a misunderstanding of how much they really need in retirement and statistics show very few people have actually taken time to (get) a better idea."
The Employee Benefit Research Institute found that just 44 percent of respondents had tried to calculate how much they would need to live comfortably in retirement.
Borzi not only wants people to save more but also to have a sense of how investment fees can diminish one's nest egg over time. "There are certain pitfalls you might encounter as you save that you need to be aware of, such as higher fees for certain investments," she said. "One problem we are working on is making sure the investment advice women and men get is simple and straightforward."
In October 2010, the Labor Department proposed a regulation that would have made brokers-dealers as well as others who call themselves investment advisers subject to the "fiduciary standard" under the Employee Retirement Income Security Act. A fiduciary has a strict legal obligation to put a client’s financial interest first. But most financial planners are regulated under the Investment Company Act of 1940, which doesn't stop a money manager from putting his or her interests above a client’s.
"People think they are getting investment advice for free because they don't have to write a check, but they are paying for it through [commissions from] third parties the broker steers them to," Borzi said.
Financial services and human resources organizations argued that the Labor Department's definition of fiduciary was too broad and would raise costs on retirement savings plans.
The proposal was dropped under intense opposition by the financial services industry. "We were blown away," Borzi said. "The fact that the financial services people have put so much money into defeating this has given us a sense of how important it is to ordinary Americans."
"This is about transparency and accountability," she added. "When people hire someone to give them investment advice they think they are getting advice in their best interest and that's not what's happening. There's no shortage of people wanting to separate them from their money."
In late August, 401(k) participants will see for the first time exactly what it costs to participate in a workplace savings plan when new disclosure rules go into effect. Few workers have an idea about what they are paying to participate in a plan because the fees are automatically withdrawn from their savings.
"We don't put our finger on the scale with respect to one investment or the next, but we are serious about making sure people have all the tools to understand what they are paying for these investments," Borzi said. "To the extent the result is [that] people move into lower-cost investments, that's fine with us."
Check out the slideshow below for eight ways to prepare for retirement, according to the Labor Department.
Americans spend an average of 20 years in retirement. If you're not saving, it's time to start. Begin small if you have to, and try to increase the amount you save each month. The sooner you start putting funds aside, the more time your money has to grow.
Experts estimate that you will need about 70 percent of your preretirement income -- for lower earners, the figure is 90 percent or more -- to maintain your current standard of living when you stop working. Use <a href="http://www.choosetosave.org/ballpark/" target="_hplink">this calculator</a> to come up with a ballpark estimate. Research shows that people who try to estimate their needs in advance ultimately save more for retirement.
If your employer offers a retirement savings plan, such as a 401(k) plan, sign up and contribute as much as you can. Your company may kick in a match, and deductions can be automatically taken from your paycheck. Over time, compound interest and tax deferrals can make a big difference in the amount you accumulate. Make sure your plan isn't a lemon by searching the website <a href="http://www.brightscope.com/" target="_hplink">Brightscope.com</a>. If it falls short, ask the management to do something about it.
How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you'll have saved at retirement. Know how your savings or pension plan is invested. Learn about your plan's investment options and ask questions. Put your savings in different types of investments. By diversifying this way, you are more likely to reduce risk and improve return. Your investment mix may change over time depending on a number of factors such as your age, goals, and financial circumstances. Financial security and knowledge go hand in hand.
If you withdraw your retirement savings now, you'll lose principal and interest; you might lose tax benefits or have to pay withdrawal penalties. If you change jobs, leave your savings invested in that employer's retirement plan. Or roll them over to an IRA or your new employer's plan.
The cost of your investments makes a big difference. Index funds are a good option for reducing costs. The Labor Department provides this example: Assume that you are an employee with 35 years until retirement and with a 401(k) account balance of $25,000. If the returns on investment for your account for the next 35 years average 7 percent and the fees and expenses reduce this by 0.5 percent, your account balance will grow to $227,000 at retirement, even with no further contributions. If the fees and expenses are 1.5 percent, however, your account balance will rise to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.
You can put as much as $5,000 a year into an individual retirement account (or IRA). Those 50 or older can contribute even more. You can also start with much less. IRAs also provide tax advantages. When you open an IRA, you have two options: a traditional IRA or a Roth IRA. The tax treatment of your contributions and withdrawals will depend on the option chosen. You can set it up so that an amount is automatically deducted from your checking or savings account and deposited in the IRA.
Social Security pays benefits that are on average equal to about 40 percent of what you earned before retirement. You should receive a statement each year that gives you an estimate of how much your benefit will be and when you can receive it. For more information, visit the<a href="http://www.ssa.gov/" target="_hplink"> Social Security Administration's website</a> or call (800)772-1213.