Jan. December 1995 Feb. EBRI Issue Brief (ISSN 0887-137X) is published monthly at $300 per EBRI Chart 1 Chart 3 Table 3 Chart 4 Mar. Chart 2 Table 2 year or is included as part of a membership subscription by the Em- Table 1 Confidence Among Current Workers in Having Enough Money To Live Comfortably in Retirement Preretirement and Postretirement Lifestyles Among Current Workers and Retirees, 1995 This Retirement Financial Knowledge Among Current Workers, 1995 Issue Brief Percentage of Americans Not At All Confident That. . . was written by Paul Yakoboski of EBRI with ployee Benefit Research Institute, 2121 K Street, NW, Suite 600, EMPLOYEE Financial Knowledge and Retirement Planning Among Current Workers, 1995 Retirement Confidence, 1992 Versus 1995 Confidence or False Confidence Among Current Workers Regarding Their Retirement Income Prospects, 1995 Washington, DC 20037-1896. Application to mail at second-class Apr. BENEFIT assistance from the Institute’s research and editorial staff. 1995 Percentage Who Answered 1995 55 Highly Moderately Less 32 postage rates pending in Washington, DC and additional mailing offices. 52 40 30 30 Very Somewhat 28 10 13 27 60 They have a good understanding of 20 RESEARCH 45 Knowledgeable Knowledgeable Very confident Knowledgeable POSTMASTER: Send address changes to: Retirees, EBRI Issue Brief, 2121 K 23 Confident Confident 10 True False Don’t know May 30 1992 how the Social Securty system works 57 1992 50 18 Street, NW, Suite 600, Washington, DC 20037-1896. Copyright 1995 by Postretirement 1992 struggling to get by Struggling to get by INSTITUTE ® Somewhat confident 1992 Are Workers Kidding Themselves? s 24 (percentage) 13 12 40 They have a good understanding of Employee Benefit Research Institute. All rights reserved, No. 168. 20 Over the past 20 years, U.S. government bonds have provided lower return 55% 20% 25% Overall, how confident are you that you will have enough money to live comfortably throughout your retirement years? 7 22 22% 52% 21 19 18 nNot too confident 16 17 17 30 how the Medicare system works 16 20 Jun. Retirees, Aside from Social Security taxes or an employer-funded retirement plan, has money set aside 67% 65% 1995 1995 44% on investment than the U.S. stock market. (TRUE) 59 Just making ends meet 10 just making ends meet 8 Percentage who have given a great deal of thought to their retirement. 7 70 58 20 Not at all confident 33 Preretirement Social Security will continue to provide n for retirement that they saved on their own, including 401(k)-type plans. 18 Employer stock is typically a less volatile investment for employees than investing 38 38 24 10 0 benefits of equal value to today’s 23 Percentage who have any money set aside for retirement that they have saved on their own, 11 77 66 Jul. Results of the 1995 Retirement in a diversified portfolio of stocks. (FALSE) 17 Try to save regularly for retirement by saving something once a month, once every pay period, 92 87 84 0 comfortable Current Workers,Worrieds Faithfuls Self-Sufficients Doubly Assureds Comfortable 34 aside from Social Security taxes or an employer-funded pension plan. Medicare will continue to provide 53 or in another regular way. (Asked of those who have set money aside for retirement.) 1993 1994 1995 and 28 percent cite their own personal saving and Postretirement resources than retirees. Eighteen percent of current The probability of losing money on an investment in a mixture of stocks from 29 24 56 Americans are 14 to educate participants in 401(k)-type plans; the similari- benefits of equal value to today’s Introduction .. 2 40 percent for those aged 65 and over. Among the 14 Aug. Among savers, the percentage who try to save regularly for retirement. 92 90 Nothing herein is to be construed as necessarily reflecting the views of the Employee Benefit Source: Employee Benefit Research Institute/Mathew Greenwald and Associates, 1995 Retirement Confidence Survey. different industries goes up the longer you hold on to the investment. (FALSE) 11 very comfortable Very comfortable Source: Employee Benefit Research Institute/Mathew Grenwald and Associates, 1995 Retirement Confidence Survey. workers report receiving assistance from a stockbroker, Tried to figure out how much money they will need to have saved by the time they retire so they Workers’ 0 5 10 15 20 42 25 34 30 thinking about 35 25 ties and differences in workers’ and retirees’ attitudes on investments. One-quarter (26 percent) of current 26 youngest somewhat confidents (aged 26–34) almost one- Current Workers, Among savers, the percentage who have tried to figure out how much money they will need Research Institute (EBRI) or the Employee Benefit Research Institute Education and Re- 49 33 Table of 54 can live comfortably in retirement. (Asked of those who have set money aside for retirement.) Percentage The average person retiring today will need 60 percent to 80 percent of his or her 83 14 4 Confidence . 3 28 percent from an insurance agent, 18 percent from an Preretirement retirement, and Sep. Confidence Sur workers expect money their employer puts into a pension issues concerning retirement; and the public’s attitudes vey half (45 percent) have nothing set aside. Fifty percent of to have saved by retirement so that they can live comfortably in their retirement. 9 work income during retirement to maintain the same standard of search Fund (EBRI-ERF) or as an attempt to aid or hinder the passage of any bill pending Source: Employee Benefit Research Institute/Mathew Greenwald and Associates, 1995 Retirement Confidence Survey. (chart 1) tion of Americans (both workers and retirees) who accountant, and 40 percent from an employer. Fifteen of very confidents and 10 percent of somewhat Source: Employee Benefit Research Institute/Mathew Greenwald and Associates, 1995 Retirement Confidence Survey. while the workers with household incomes of less than $25,000, regarding Social Security and Medicare. plan to be their most important retirement income very confidents with incomes under $25,000 and Introduction living that they had just before they retired. (TRUE) 0 1020 30405060 Percentage expecting personal saving to be their most important source of income in retirement. Impact of Educational Material 68 55 before Congress. Are Workers Oct. Contents are classified as self-sufficient (high in personal compared with 89 percent for workers with household 2 percent of retirees reported receiving assistance from a 75 years 80 years 90 years overwhelming source. Thirty-eight percent of current retirees say that Percentage confidents cited Social Security. Sixty-eight percent 72 percent of somewhat confidents in the same income Justified in Do you believe a male retiring at age 65 today can expect to live to 75 years, 42 42 10 Source: Employee Benefit Research Institute/Mathew Greenwald and Associates, 1995 Retirement Confidence Survey. confidence and low in confidence in the govern- incomes over $50,000. For workers up to age 55, there The vast stockbroker, 17 percent from an insurance agent, majority do not Social Security is their most important source of retire- of very confidents and 55 percent of somewhat confidents group have nothing set aside. These are individuals who five correct answers). Eight percent provided correct Two-fifths (39 percent) of all workers utilizing employer- average person retiring today will need 60 percent Source: Employee Benefit Research Institute/Mathew Greenwald and Associates, 1995 Retirement Confidence Survey. While the vast the material they seem to be equally or more likely than 80 years, or 90 years old? (80 YEARS) EBRI is a nonprofit, nonpartisan public policy research organization based in Washington, Nov. Their Stated ment) increased from 23 percent in 1992 to was not much variation in the utilization rate, but it was majority of 12 percent from an accountant, and 25 percent from an think that their fellow citizens are doing an adequate job ment income, whereas only 14 percent of current cited their own individual saving. Twenty-two percent very well may have a false sense of confidence. Many answers to all five questions. Fifty-five percent of all provided educational material reported that the to 80 percent of his or her preretirement work majority their peers to alter their behavior as a result. This Confidence? .................................................................. DC. Established in 1978, EBRI provides educational and research materials to employers, 3 Source: Employee Benefit Research Institute/Mathew Greenwald and Associates, 1995 Retirement Confidence Survey. 30 percent in 1995 (chart 2). The survey shows noticeably higher (over 95 percent) for workers aged 55 Workers’ • While three-quarters of American workers are confident regarding their retire- Americans employer. Among current workers participating in a of preparation, most feel good about their individual workers expect it to be their most important source. One- and 29 percent of each group, respectively, cited an individuals may not be aware of the need to begin saving workers displayed a moderate level of retirement finan- materials or seminars led them to increase the amount of income during retirement to maintain the same these systems work. The acceptability of various propos- increases, will have to be made to guarantee the system’s Dec. (74 percent) of (table 1) indicates that plan sponsors may want to focus addi- employees, retired workers, public officials, members of the press, academics, and the general clear signs of what may be the start of a significant and over. Thus, while most workers will take advantage ment income prospects, many should probably evaluate their situation to deter- were confi- salary reduction plan (401(k) plan or 403(b) plan) at situation. Eighty-four percent of Americans believe third of retirees (33 percent) say that money they saved, employer-funded pension. would seem to indicate a healthy degree of realism among early for retirement or may not understand the advan- waves in which the index was constructed. As men- cial knowledge (two or three correct answers), and their contributions to the plan. This effect was slightly standard of living that he or she had before retir- als will ultimately depend on what the public long-term financial solvency. Expectations of Retirement Age ................................. American workers 4 tional attention on reaching this segment of workers. public. EBRI-ERF is a nonprofit, nonpartisan education and research organization estab- that most people in the United States do not save shift toward increased dependence on individual of the educational material offered, employers may want mine whether their confidence is justified. Many, but not all, American workers dent about work, 72 percent received some type of educational either through an employment-based plan (11 percent) or 1995 Americans regarding current trends and developments. Confidence tage of beginning to save early. Even small sums of tioned, the swell in public discourse on the long-term 16 percent had little relevant knowledge of financial EB Implications RI more likely for workers with a high school degree or less Forty-two percent incorrectly thought he would live to understands and does not understand. Retirement Confidence Indices ....................................... 4 expected retirement lifestyle. Similarly, the proportion Similarly, only 24 percent of respondents are confident ing (table 3). The vast majority of workers understand Fifty-eight percent of workers have given a great lished by EBRI in 1979. EBRI-ERF produces and distributes a wide range of educational enough money to live comfortably throughout responsibility and saving effort and reliance on to focus extra effort on less educated, lower paid employ- recognize the need to save (among those confident, 30 percent have nothing saved their retire- material or seminars regarding the plan, compared with otherwise (22 percent), is their most important income Expectations of Retirement Age are confident that the Medicare system will con- money set aside on a regular basis can compound into a financial viability of Social Security and Medicare may issues (zero or one correct answers). (chart 2) (43 percent versus 38 percent) and most likely for middle age 75, 10 percent thought to age 90, and 5 percent did Older Americans profess to having a better who believe their lifestyle in retirement will be “very regarding their the level of their preretirement income that must be deal of thought to their retirement, and an additional publications concerning health, welfare, and retirement policies. Through its books, policy EMPLOYEE retirement. However, two-thirds (67 percent) of employment-based programs and away from ees, who are less likely to use the material provided. for retirement); however, most have not gone the next step and developed a saving ment income 59 percent of retirees who received such educational source, and 24 percent cite money their employer put Who Are the Self-Suf Who Are the Self-Sufficients? ficients? ..................................... 5 tinue to provide benefits of value equal to that of sizable nest egg over a period of three or four decades. be causing a decrease in the public’s level of confidence Workers tended to have more knowledge than income workers (44 percent among those with incomes of understanding of how the Social Security system func- not know (table 3). Many workers would seem to under- comfortable” increases to 14 percent from 9 percent who retirement income prospects, many of those who are replaced in retirement in order to maintain their stan- 33 percent have given it a little bit of thought. Combine forums, and monthly subscription service, EBRI-ERF contributes to the formulation of current workers expect their retirement lifestyle prospects in 1995. Twenty-two percent of current Among those reading the material or attending plan based on a target. Among confident savers, 60 percent have not tried to material when participating in such a plan while still A conclusion of potential false confidence among many reliance on government programs. Worker Education into a pension plan. Such differences are not surprising ............................................................ 5 the benefits received by retirees today, down from in these two programs. Among those who are confident and have retirees regarding the financial issues covered; BENEFIT $25,000–$50,000). Almost one-half (46 percent) of all tions. estimate the amount of time that they are likely to spend Fifty-five percent of respondents aged 26–34 describe their current lifestyle as very comfortable. confident should probably evaluate their individual dard of living. this with the fact that the majority of workers effective and responsible health, welfare, and retirement policies. EBRI and EBRI-ERF The fraction of respondents classified as self- the seminars, 95 percent reported that the material workers were very confident that they will have calculate how much they will need to save to fund a comfortable retirement working. was reinforced in other areas. The average expected age Impact of Educational Material ................................. 6 to be either very comfortable or comfortable. started saving for retirement, 90 percent try to This increase in the fraction of Americans While given the increase in the normal retirement age that were not confident in their understanding of the 28 percent in 1992. Thirty-four percent of Americans 18 percent of retirees scored very highly, 52 percent were workers utilizing the material provided reported that it in retirement, with the potential implication that they Among retirees, a slightly larger proportion indicate they situation to determine whether their confidence is well Fifty-five percent of workers knew that, over the (53 percent) expect money they save themselves to be RESEARCH have—and seek—a broad base of support among interested individuals and organizations sufficient tended to rise with household income, included a description of the investment options avail- Financial Knowledge enough money to live comfortably throughout ....................................................... lifestyle. 6 of retirement for very confidents was 60, with 49 percent on the surface this 67 percent figure corresponds closely classified as self-sufficient was matched by a decrease of save on a regular basis. However, among these many current workers will experience for full Social system, compared with 31 percent of those aged 65 Participant “moderately knowledgeable,” and 29 percent were “less led them to reallocate their money among the options will accumulate insufficient assets to maintain their are had a “very comfortable” lifestyle before retirement not at all confident that the Medicare system will founded. Among the three-quarters of workers confident in past 20 years, U.S. government bonds provided a lower their most important source of retirement income, and it with interests in employee benefits education, research, and public policy. Forty-three increasing from 18 percent for those with house- (table 2) able in the plan. Ninety-four percent reported that the their retirement years, and 52 percent were some- INSTITUTE planning to retire at age 60 or younger. Among the ® 6 percentage points in the fraction of respondents with the 62 percent of workers who report that they have confident savers, relatively few (one-half of very Security benefits and the debate regarding what changes continue to provide benefits of value equal to that of the education in knowledgeable.” available in the plan. Again, this effect was slightly more and over. desired standard of living throughout their retirement. Understanding of how the Social Security (18 percent) than indicate this level of satisfaction with their retirement income prospects, 30 percent have nothing rate of return than the U.S. stock market (table 3). is likely that workers would be receptive to material that Financial Knowledge and Implications for Savings percent of all hold incomes less than $25,000 to 40 percent for advantages of saving in a tax-deferred plan were cov- • These are some of the highlights from the 1995 Retirement Confidence Survey. Worker somewhat confidents, the average expected age of saved some of their own money for retirement, a closer classified as faithful over the same period, from confidents and one-third of somewhat confidents) should be made to ensure the Social Security system’s what confident (total confident is thus 74 percent) benefits received by retirees today, up from 24 percent in their lifestyle during retirement (13 percent). In addi- employment- Average scores among workers tended to rise likely among those with a high school degree or less works also tended to increase with educational levels yet set aside on their own for retirement, including money Appropriate asset allocation decisions by retirement helps them plan and save for retirement as long as it is EBRI Issue Briefs provide expert evaluations of employee benefit issues and trends, as well Social Security Decisions ................................................................. 7 Americans are ered. Noticeably fewer workers (69 percent) reported This Issue Brief discusses key findings from the survey, including workers’ retirement was 63, and 31 percent expected to retire at those with household incomes of $50,000 or more. analysis gives reason to suspect that some workers may 18 percent to 12 percent. Faithfuls are low in personal have tried to figure how much money they will (chart 1). Overall confidence in 1995, after dropping in long-range financial solvency. These differences also 1992 (chart 4). Given that the survey was conducted in based with educational levels and household income. Those with (50 percent) than among those with more education and household incomes. Older Americans, i.e., those aged Current work- tion, more retirees describe their current lifestyles as in a 401(k)-type plan at work. Among those who are savers depend on their knowledge of the risk and return understandable and user friendly. This bodes well for as critical analyses of employee benefit policies and proposals. EBRI Notes provides up-to- (table 3) not confident that the principles of asset allocation and diversification confidence, and potential false confidence, regarding retirement income pros- age 60 or younger. Very confident workers aged 35–44 Similarly, the fraction classified as doubly assured confidence and high in confidence in government regard- be unrealistically optimistic. need to have saved by retirement to fund a com- reflect the growth of retirement saving plans such as 1994, rebounded to 1993 levels, when 19 percent of August, this finding should not be viewed as a reflection Education retirement a high school degree or less had an average score of 2.45, (45 percent). 65 and over, were the only age group in which more than ers and retirees “just making ends meet” (20 percent), compared with confident and have started saving for their retirement, tradeoffs among various investment classes. This finding both private- and public-sector retirement saving Workers Versus Retirees ................................................. date information on a variety of employee benefit topics. 8 EBRI’s Benefit Outlook provides and Medicare (either not too Workers Versus were covered. Similarly, 69 percent reported that the pects; worker knowledge of retirement finance issues; employer efforts to educate had an average expected retirement age of 57. Given increased with household incomes from 23 percent to ing retirement. Thirty percent of respondents were Among those who are confident regarding workers were very confident and 55 percent were some- 401(k) plans in the work place. Interestingly, while workers with less of Americans’ views on current proposals to reform the fortable lifestyle. The only demographic categories in saving plans, compared with an average score of 3.45 for college gradu- one-half the respondents said they were confident that are equally those who described their preretirement lifestyle that 60 percent have not tried to calculate how much they will indicates that many individuals do not have a working Standard of Living Expectations................................ 8 initiatives. a comprehensive legislative bill chart coupled with observations on the likelihood for passage confident or their retirement income prospects, the majority material covered estimating the income needed in participants in 401(k)-type plans; worker and retiree attitudes on issues concern- increases in life expectancy and the fact that the normal 39 percent. Among those with household incomes under classified as doubly assured (high in personal confidence what confident. But is this confidence justified? Given formal education (i.e., a high school degree or less) Medicare system but rather as a general sense of what which more than one-half have tried to make the calcula- such as 401(k) plans, is an area of intense focus among ates. The average score increased from 2.41 for those they had a good understanding of how the Medicare confident way (16 percent). Similarly, a larger fraction of current need to save by the time they retire to fund a comfortable (chart 3) knowledge of the relative historical returns among some of employee benefits-related legislation. EBRI’s Quarterly Pension Investment Report not at all confident) that they have a good under- have either not started saving on their own for retirement. These findings indicate areas on which ing retirement; and the public’s attitudes regarding Social Security and Medicare. retirement age for receiving full Social Security benefits Retir $25,000, 40 percent were classified as worried and ees and high in confidence in government) in 1995 (in 1992 that many of these workers have not started to save, and Saving Patterns are less likely than their peers to utilize educa- the system can be expected to provide in the future. tion were very confidents under age 45 and very public policymakers as well as among plan sponsors. earning less than $25,000 to 2.98 for those earning over system works. This is not surprising given that this is Sources of Income ........................................................ regarding their8 retirees classify their current lifestyle as “struggling to lifestyle. basic investment options. (QPIR) provides historical data on net contributions to pension plans and investment The 1995 EBRI/Greenwald Retirement Confidence retirement or are saving but without having employers, as plan sponsors, may want to focus addi- standing of how the Social Security system works. is in the process of increasing to age 67, retirement at 19 percent were faithful. By comparison, among those the figure was 32 percent). Twenty-seven percent of those who have started often seemed to be saving tional material that is provided, when they do use confidents of all ages earning over $50,000. While many Much attention is now being directed at “what works” in Retirees express greater confidence than work- $50,000. Scores did not vary with worker age. Saving Patterns ........................................................... 9 the group that would have direct experience in terms of retirement get by” (10 percent) than classify their preretirement Many, but not all, American workers recog- Thirty-eight percent of workers knew that allocation by plan type, total plan assets and their investment mix by plan type, and short- Survey was funded by grants from the Employee calculated how much they will need to accumulate tional educational efforts. Combined with other findings More current workers report saving on their own for • Survey findings indicate that, among workers with 401(k)-type plans, participant This proportion is up from 38 percent in 1992. The such relatively young ages will require significant with household incomes of $50,000 or more, 14 percent respondents were classified as worried (low in personal without a specific goal in mind, there are probably many the material, they seem to be equally or more Social Security and Medicare .......................................... 9 ers in both Social Security and Medicare. Two-thirds say individuals are saving, it is unfocused saving. Without a terms of helping workers plan and save for retirement. nize the need to save. Most have not gone the next Workers who are highly and moderately receiving benefits from these systems. income prospects. Among current workers, 22 percent lifestyle in the same way (7 percent). employer stock is not typically a less volatile investment and long-term earnings. EBRI’s Washington Bulletin provides sponsors with short, timely Benefit Research Institute and the following organi- by retirement. This indicates that the confidence in the survey, they indicate that estimating retirement retirement relative to current retirees, and they also education does impact decisionmaking. Two-fifths of participants who utilized proportion who are not at all confident of their under- personal resources. Again, individuals may not fully were classified worried and 7 percent were faithful. confidence and low in government confidence) in 1995, Almost three-quarters (72 percent) of current for whom confidence is not well founded. knowledgeable about financial issues are more (chart 4) likely than their peers to alter their behavior as a they are very or somewhat confident that they have a well thought out goal in mind, it is hard to tell whether step and developed a saving plan based on a well- are very confident that they will have enough money to The fact that current workers generally expect to for employees than investing in a diversified portfolio of updates on major developments in Washington in employee benefits. zations: Aid Association for Lutherans, Allstate of many may not be well founded, i.e., they are not income needs, in particular, is an area in which current report beginning to save at an earlier age and were more plan-provided educational material reported that it led them to increase their standing of the system was 13 percent in 1995, up from appreciate just how much. On the other hand, one-half of Confidence in Future Benefit Levels The fraction of respondents classified as self- ....................... 10 compared with 28 percent in 1992. workers participating in some type of salary likely (67 percent and 65 percent, respectively) than result. This indicates that plan sponsors may want good understanding of Social Security (67 percent) and one’s saving will prove adequate or to know how to alter informed target. This missing plan could be a sign of live comfortably throughout retirement, and an addi- be better off in retirement, or at least just as well off, stocks (table 3). Many workers are interested in a “safe” Insurance Co., American Association of Retired workers need additional education and assistance. Even Confidence in Futur Implications likely to save on a regular basis. Slightly over one-half ................................................................... e Benefit Levels contributions. Almost one-half indicated that the material led them to change 11 10 percent in 1992 (chart 4). Similarly, over one-half very confidents and two-thirds of somewhat confidents sufficient also tended to rise with educational levels. saving toward a well-informed, calculated goal. reduction retirement saving plan, such as a Such trends are not surprising given current Ar less knowledgeable respondents (44 percent) to e Workers Justified in Their Stated to focus additional attention on reaching this Medicare (55 percent), compared with one-half of work- one’s saving behavior over the course of a career to “false confidence” in their preparations for retire- tional 52 percent are somewhat confident (total of while retirees seem to have actually experienced the investment for at least some of their retirement savings EBRI also publishes EBRI/Gallup public opinion surveys, special reports, studies, and books. Persons, American Council of Life Insurance, AT&T, (53 percent) of retirees reported having saved any money their asset allocations in the plan. While workers with less formal education are (53 percent) of all Americans report that they are not plan to work at least part-time once they retire. Thus Nineteen percent of those with a high school degree or This should not obscure the fact that the majority have developments. There has been much debate recently 401(k) plan or 403(b) plan, say that their employer though almost 70 percent report that estimating income have money other than Social Security or an em- segment of workers. ers who are as confident in their understanding of Social achieve financial security in retirement (table 1). 74 percent are confident). The figures for current retirees exact opposite further highlights the need for current Confidence? ment. For employers and policymakers, it highlights and view employer stock as such an investment without Tables John Hancock Insurance Co., INVESCO Funds Only 24 percent of Americans are confident that on their own for retirement (aside from Social Security less likely to utilize educational material that is provided, when they do use the confident that they have a good understanding of how seemingly low expected retirement ages, especially less were self-sufficient, 34 percent of those with some about the long-term financial stability of the Medicare started to save, but it highlights the potential for false has provided them with educational material or needs is covered, ployer-funded pension plan set aside for their very few savers in general have Security (51 percent) and two-fifths who are as confident Therefore, among those who are very confident, are relatively similar; 27 percent of current retirees are workers to develop thoughtful retirement saving plans current workers’ need for understandable educational For information on subscribing to EBRI publications or on becoming a member of understanding how it compares with other options that Table 1, Confidence or False Confidence Among Group, Kemper Financial Services, Massachusetts tried to estimate how much they need to accumu- the Social Security system will continue to provide taxes or an employer-funded retirement plan). By material they are equally or more likely to alter their behavior as a result. the Medicare system works. This figure is close to the among the young, could be the result of changing percep- college were self-sufficient, and 41 percent of college confidence. program and what should be done to ensure it. In seminars regarding the plan. Among those with in understanding Medicare (42 percent). 62 percent have either not started saving on their own The overwhelming majority of very confidents and retirement (table 2). In addition, moderately or highly The majority of very confident that they will have enough money to live and then follow through with them, lest they reach material that will assist them in making such calculations EBRI, call or write to EBRI at 2121 K Street, NW, Suite 600, Washington, DC 20037- may be available to them. Current Workers Regarding Their Retirement Mutual Life Insurance Co., National Rural Electric benefits of value equal to that of the benefits late by the time they retire (among all workers comparison, 62 percent of current workers reported 55 percent reported in 1992. The proportion who are not tions of what it means to be “retired.” graduates were classified as self-sufficient. addition, the level of Social Security benefits is already such resources available, the vast majority These are some of the highlights from the 1995 (including saving through a salary reduction plan at Retirees are less confident in the two programs’ knowledgeable respondents are more likely than respon- somewhat confidents have given thought to their own working Ameri- comfortably throughout retirement, and 48 percent are retirement age and face the prospect of a reduced and then developing a saving plan accordingly. Fifty-six percent of workers knew that, histori- 1896, (202) 659-0670. Income Prospects, 1995............................................... 5 Cooperative Association, Paine Webber, Inc., The Financial who have started saving for retirement, only received by retirees today, down from 33 percent having saved money on their own for retirement. In • While workers believe their lifestyle will improve in retirement, retirees believe at all confident in their understanding of the Medicare Focusing solely on individual confidence, the Retirement Confidence Survey, co-sponsored by the being scaled back as the age for receipt of normal retire- (85 percent) read the material or attended the ability to continue to provide benefits of value equal to work) or are saving but without a plan based on a retirement. Seventy percent of very confidents and dents who have less financial knowledge to have taken cans appear to somewhat confident (total of 75 percent are confident). standard of living or the need to remain active in the This conclusion is particularly important given cally, the probability of losing money (in nominal terms) Table 2, Financial Knowledge and Retirement Principal Financial Group, The Prudential Insur- 35 percent have tried to calculate how much they addition, 88 percent of current workers who have saved their lifestyle in retirement has declined. The 26 percent of workers describing system was 24 percent in 1995, up from 20 percent in average personal confidence index score was 8.2 in 1995. As part of the ment benefits is now in the process of being raised from Employee Benefit Research Institute (EBRI) and in 1992. Thirty-three percent of Americans are not at all that of those it provides retirees today, but they express calculated target. Among those who are somewhat seminars. This indicates a high interest level among 58 percent of somewhat confidents have given a great steps to prepare for their retirement. However, when have a limited work force longer than anticipated. other survey findings indicating that education does in a mixture of stocks from different industries has not Planning Among Current Workers, 1995 .................. 7 EBRI Issue Brief is registered in the U.S. Patent and Trademark Office © 1995. ance Co., TIAA-CREF, and UNUM Insurance Co. need to save by retirement to fund a comfortable reported that they try to save regularly for retirement, their current lifestyle as “just making ends meet” declines to 16 percent when 1992. Combine these findings with the likelihood that (Index scores range from 3 (not confident) to 12 (very EBRI/Greenwald Mathew Greenwald and Associates. This 65 to 67. Projections by the Social Security Board of Knowledge Issue Brief confident that the Social Security system will continue to higher levels of confidence in the programs’ ability than confident, the comparable figure is 78 percent. This workers regarding their plans. In addition, there is deal of thought to the subject. An additional 22 percent comparing the highly and moderately knowledgeable, the amount of Standard of Living Expectations Table 3, Retirement Financial Knowledge Among matter and does have an effect on worker behavior. Two- risen the longer the investment is held (table 3). This ISSN: 0887-137X 0887-1388/90 $ .50 + .50 . Retirement We are currently enlisting the support of Employee lifestyle), and most who have tried cannot give an and that 56 percent had started saving by age 30. Among these respondents are asked about their expected retirement lifestyle. Among some of those who think they have a good understanding confident)). The 1995 average was slightly higher than Retirement Trustees show that the Old-Age, Survivors, and Disabil- discusses these and other key findings from this year’s provide benefits of value equal to that of the benefits indicates that the confidence of many may not be well evidence that such material does impact worker behav- highly knowledgeable are more likely to have already and 35 percent of each group, respectively, have given a financial Current Workers, 1995 ............................................... 8 do current workers. Forty-three percent of retirees Sources of Income fifths of participants in employment-based retirement finding reinforces the finding that workers have a organizations that are interested in sponsoring the 1 Benefit the 53 percent of retirees who saved for retirement, retirees, a larger proportion indicate they had a “very comfortable” lifestyle before of these programs actually do not, and one can conclude the 1994 average of 8.0. Perhaps as a reflection of contin- Confidence ity Insurance (OASDI) program is expected to begin survey along with time trends utilizing previous waves amount when asked received by retirees today, up from 23 percent in 1992 (among the 35 percent who have However, current workers and retirees differ founded. This lack of saving and/or planning should not ior, which bodes well for improved retirement income Charts little bit of thought to the subject. begun setting aside money for retirement, to try to save knowledge regarding issues important in planning and believe Social Security will continue to provide the same saving plans, such as 401(k) plans, who utilized educa- limited understanding of investment basics regarding Confidence 1996 EBRI/Greenwald Retirement Confidence Research reportedly made the calculation, one-half could not give a 81 percent tried to save on a regular basis, but only one- retirement (18 percent) than during retirement (13 percent), and a larger fraction that over one-half of Americans do not know how the notably in their perceptions and expectations ued strength in the economy, the personal confidence Survey, a retire- of the survey. Specifically, the showing a negative cash flow in 2013, and the trust fund Issue Brief discusses (chart 4). While many do not think they have a good Not surprisingly, current workers’ perceptions of what obscure the fact that the majority have started to save, prospects in the future. Chart 1, Confidence Among Current Workers in for retirement on a regular basis, and to have tried to However, one-quarter (23 percent) of very saving for retirement. For the first time in 1995, the level of benefits, and 34 percent believe Medicare will be tional material provided by their employer reported that risk and return tradeoffs and the historical performance Survey. Sponsorship includes participation in two Institute- number when asked). Apparently even when the subject quarter (27 percent) started saving by age 30. These classify their current lifestyle as “struggling to get by” (10 percent) than classify major U.S. public retirement security programs function. regarding their standard of living before and after index returned to the 1993 level of 8.2 and continues the ment confidence workers’ confidence, and potential false confidence, will be exhausted in 2030. A shift in expectations from understanding of how the system works, the vast major- confidents and one-third (34 percent) of somewhat Having Enough Money To Live Comfortably in will be their most important source of retirement income but it highlights workers’ need for educational material The propensity to utilize educational figure out how much they will need to have saved by the Retirement Confidence Survey attempted to assess able to do the same. Only 19 percent of workers express the material led them to increase the amount of their records of different investment classes. Indices meetings during which the format and content of Education matter is presented, it is not in a form that workers find differences can probably be largely attributed to the their preretirement lifestyle in that manner (7 percent). The fact that workers Fundamental changes in the functioning of the retirement. While workers seem to believe their upward trend since 1992, when the average index of index is calcu- regarding their retirement income prospects; workers’ reliance on government to reliance on one’s self actually material increased with both worker educational ity appear to be very realistic regarding what the system confidents have set aside no money of their own Retirement ................................................................... 4 differs from retirees’ views of their most important to help them construct a well thought out retirement time they retire. Americans’ general knowledge regarding retirement any confidence that Social Security will be able to contributions to the plan. In addition, almost one-half Forty-two percent of workers knew that a male the survey are discussed; sponsors will receive a growth of 401(k)-type retirement saving plans in the and generally expect to be better off in retirement while retirees seem to have Medicare system are currently being debated, and lifestyle will improve with retirement, retirees Chart 2, Retirement Confidence, 1992 Versus 1995 personal confidence was 7.8. Focusing solely on confi- lated to measure ..... 6 knowledge of retirement finance issues; employer efforts levels and household incomes. Seventy-five per- user friendly or understandable, and therefore they do is likely to provide in the future. Future benefit levels for retirement, including money from a 401(k)-type source of retirement income. saving plan that can then be executed. The majority (53 per- 3 planning and saving issues. Respondents were asked continue providing benefits at a level equal to the indicated that the material led them to reallocate their retiring at age 65 today can expect to live to age 80. copy of the full report and raw survey data. Please Chart 3, Preretirement and Postretirement Lifestyles work place. Research experienced the opposite further highlights the need for workers to develop changes to ensure the long-term financial solvency of the the levels of respondents’ confidence in their individual dence in government, the average government confidence cent) of current workers expect money they save cent of workers with a high school degree or less not try to use it. In addition, in the area of asset alloca- are already being cut for many current workers with the believe their lifestyle in retirement has declined Most of those workers who are confident in plan Financial Knowledge and Implications for (calculated from table 1). Among the very four true/false questions and one multiple choice 2 current level of benefits; 21 percent say they are very or money among the options available in the plan. While One-quarter (23 percent) of somewhat confidents with incomes under contact EBRI Research Associate Paul Yakoboski at Among Current Workers and Retirees, 1995 .......... 10 1 tion, responses to other questions indicate that many Fund. When it comes to financial planning for retire- thoughtful retirement saving plans. Social Security system will be debated in the not too ability to prepare financially for retirement and confi- score was 6.3 in 1995. (Index scores range from 2 (not at themselves to be their most important source of One thousand Americans over age 25, both current workers and current their retirement income prospects seem to have reported using the information when provided. increase in the normal retirement age from 65 to 67. (chart 3). The 26 percent of workers who describe their $25,000 expect Social Security to be their most important retirement income confidents, 30 percent of those aged 26 to 34 have no question. 3 somewhat confident that Medicare will be able to con- workers with less formal education (i.e., a high school The average life expectancy for males at age 65 in 1992 was 15.5 years, Savings Decisions Chart 4, Percentage of Americans Not At All .................. retirees, were interviewed by telephone between August 1 and August 23, 1995. (202) 775-6329 for more information or to sign up as source. Social Security does replace a proportionately greater share of ment, it is also not surprising to find that current All rights distant future; yet a sizable fraction of the population dence in the federal government’s ability to provide all confident) to 12 (very confident)). The 1995 average income in retirement; 25 percent cite money they realistic expectations regarding their most impor- This figure rose to 89 percent among those with a respondents do not understand the risk and return This response would also seem to indicate that many according to the U.S. Department of Health and Human Services, Public current lifestyle as “just making ends meet” declines to money set aside. This percentage ranges from 19 percent Over one-quarter (28 percent) of all workers had tinue to provide benefits in the future that have parity degree or less) are less likely than their peers to utilize The sample was representative of the U.S. population. Among those inter- preretirement income for lower income workers, and this is likely to remain a Confident That... ...................................................... 11 Health Service, Health United States, 1993 (Washington, DC: U.S. Government a sponsor. workers report utilizing a wider array of information reserved. admits it does not have a good understanding of how support to them in their retirement years. score was a decline from the mean score of the past three The propor- put into saving or retirement plans through work, tant source of retirement income. Only 2 percent characteristics of basic investment options. understand that changes, i.e., benefit cuts and/or tax 16 percent when respondents are asked to describe their viewed, 756 were not retired and 244 were retired. college degree. The utilization rate was 72 percent for to 15 percent for those aged 35–64 and jumps to Eighty-three percent of workers knew that the a high degree of retirement financial knowledge (four or feature of the system even after its likely reform in the not too distant future. with those provided today. educational material that is provided, when they do use Printing Office, 1994). EBRI Issue Brief Number 168 • December 1995 • © 1995. EBRI December 1995 • EBRI Issue Brief December 1995 • EBRI Issue Brief December 1995 • EBRI Issue Brief December 1995 • EBRI Issue Brief December 1995 • EBRI Issue Brief December 1995 • EBRI Issue Brief 10 8 2 6 12 4 December 1995 • EBRI Issue Brief December 1995 • EBRI Issue Brief December 1995 • EBRI Issue Brief December 1995 • EBRI Issue Brief December 1995 • EBRI Issue Brief December 1995 • EBRI Issue Brief 11 5 1 7 3 9 Percentage Percentage Issue Brief Issue Brief

Volume 168

Pages 12

EBRI Issue Brief

Paul Yakoboski