Saturday, April 14, 2007

Less than $25k saved for retirement?

On April 11, 2007 the Employee Benefit Research Institute (EBRI) released a retirement confidence survey here. This survey was done by a nonpartisan research group of Mathew Greenwald and Associates. Major change have been occuring this decade with pensions and the retirement benefits people would previously have received from such plans.

First the survey round that less than 50% of workers are confident about receiving a pension. However less than 40% of these workers who are not confident about receiving a pension have done anything in response to these cuts. They have not yet accepted the potential dearth of their retirement pensions.

Second 41% of workers have indicated they or their spouses are covered currently by a pension plan. However, strangely 62% of workers think they will somehow be covered by a pension plan. That means a serious disconnect is occuring between actually having a pension plan and expecting a miracle pension to arise.

Third and not unexpectedly 50% of all workers have saved more then $25k for retirement not in pension plan. While 70% of workers who have not saved for retirement at all, have assets less than $10,000. While perhaps one can argue young workers without much saved have skewed the $25k amount because of their lack of savings. However in a time when people should be saving $1 million dollars for retirement to generate $40k/year in income, it appears that people have barely saved 1/10 of that amount (or $100k).

Fourth strangely is that 72% of workers feel confident for having saved enough for retirement. Which is unusual given the fact that in the last two years alone 20% of workers have had a cut in their retirement pension benefits. And that 45% of workers are worried about their pension benefits being cut.

Fifth, only 50% of workers say they would or have taken advantage of the advice given out by the 401k management companies regarding retirement. However of that 50% only 2/3 or 66% of those people would comfortably follow the advice. Which means that half of all people would ask for advice, and even less would implement it.

Finally less than 50% of workers realize what their medical costs in retirement will be. 30% think it will be less than $100k, 52% think it will be $250k. However EBRI has calculated that the average couple will need $300k to cover health care, prescription drugs, and nursing home care not covered by Medicare, and assuming the levels covered by Medicare stays the same. This number should increase because companies are cutting the acceisibility to medical benefits for retirees, from 2006 the number went from only 31% of companies to 26% of companies offering medical benefits to retirees. A 5% drop in one year. Eventually it will be phased out, sooner rather than later.

This means that medical costs are potentially the reason why people need to save more for retirement as I mentioned earlier. However if anything people are counting more on pensions that do not and will not exist. And they are expecting greater medical coverage than will be available.

1 comment:


Great articel! Thanks!