03b closing the retirement expectations gap · closing the retirement expectations “gap”:...

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Closing the Retirement Expectations “Gap”: Variations in Demographics, Sources of (Mis)Information, and the Implications of a “Bad Guess”

Jack VanDerhei, Ph.D., CEBSResearch DirectorEmployee Benefit Research InstituteWashington, D.C.

® Employee Benefit Research Institute 2013

3B-1

Key “takeaways”

1. How large are the gaps between what workers believe they need and what is likely to actually be required?

2. How do these gaps vary with age, income, employer-sponsored plan coverage, education and type of employer?

3. Which sources of information appear to provide workers with the most accurate assessment of their retirement needs – and why.

4. What are the implications of inaccurate assessments for employers, workers and public policy?

3B-2

2013 Retirement Confidence Survey (RCS) Methodology

• 23rd annual measure of worker and retiree confidence about retirement

• 1,254 20-minute phone interviews conducted in January 2013 using random-digit dialing with cell phone supplement

• Interviewed Americans ages 25 and over• Two questionnaire versions

- 1,003 interviews with workers (not retired) - 251 interviews with retirees

3B-3

Worker Confidence About Having Enough Money for Retirement Resumes Slow, Downward TrendOverall, how confident are you that you (and your spouse) will have enough money to live comfortably throughout your retirement years? (2013 Workers n=1003)

Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1993-2013 Retirement Confidence Surveys.

38%

13%

43%

27%

41%

22%

51%

21% 0%

10%20%30%40%50%60%70%80%90%

100%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Very Somewhat Not Too Not At All

3B-4

Percentage of Workers Calculating Retirement Needs Up Slightly in 2013, Remains Steady Over Past DecadeHave you (or your spouse) tried to figure out how much money you will need to have saved by the time you retire so that you can live comfortably in retirement? (2013 Workers n=1003, percent yes)

32%31%32%29%

33%

42%45%

51%

39%

32%37%

48%53%

44%38%

43%42%42%42%43%47%

44%46%42%42%

46%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Respondent Respondent and/or Spouse


3B-5

5% 3%7% 7% 7% 8%

Many Workers Guess to Determine Savings Needed for Comfortable RetirementHow did you (or your spouse) determine this amount? Did you…? (2013 Workers giving an amount needed for retirement n=898) (Top mentions, multiple responses accepted)

7% 11% 9% 9% 9% 8%

2005 2006 2007 2008 2009 2010 2011 2012 2013

18% 19% 19% 18%21%

18%

21% 17% 19% 26% 21% 18%

46% 44% 43% 44% 42%45%

2005 2006 2007 2008 2009 2010 2011 2012 2013

Guess

Ask a financial advisor

Do your own estimate

Read or hear that is how much needed

Use an online calculator


3B-6

The Likelihood of Doing a Calculation Increases With Household IncomeHave you (or your spouse) tried to figure out how much money you will need to have saved by the time you retire so that you can live comfortably in retirement? (2013 Workers, percent yes)

25%

45%

63%

Workers withHousehold Income

<$35,000

Workers withHousehold Income$35,000-$74,999

Workers withHousehold Income

$75,000+


3B-7

Measuring the Retirement Expectations “Gap”1. Use the RCS to determine the household’s

• Expected retirement age• Income and demographic characteristics• Response to: How much do you think you (and your spouse) will need to accumulate in total

by the time you retire so that you can live comfortably in retirement? • NB: this is NOT an analysis of the probability that they will actually meet that savings

goal by their expected retirement age!

2. Project income out to expected retirement age3. Compute expected Social Security benefits at that age

• Includes early and late retirement modifications

4. Compute annual income that would be provided by their savings at their expected retirement age if they purchased a real annuity

5. Add this amount with expected Social Security benefits6. Compare that annual retirement income with 75 percent of the projected

income immediately prior to retirement7. Compute the “gap” (if any)

3B-8

Probability of failing to have enough savings to generate a combined real replacement rate of 75 percent by type of coverage (defined benefit accruals not taken into account)

nonedefined

contributiononly

defined benefitonly both

Series 1 47% 40% 60% 71%

0%10%20%30%40%50%60%70%80%

Removed from further analysis

Source: EBRI Retirement Security Projection Model, version 1860

3B-9

Probability of failing to have enough savings to generate a combined real replacement rate of 75 percent by expected retirement age (filters out all households with a defined benefit plan)

62 63 64 65 66 67 68 69 70 71 72 75Series 1 83% 88% 60% 57% 69% 52% 56% 50% 38% 50% 36% 19%

0%10%20%30%40%50%60%70%80%90%

100%


3B-10

Probability of failing to have enough savings to generate a combined real replacement rate of 75 percent by age (filters out all households with a defined benefit plan)

25-34 35-44 45-54 55-64Series 1 45% 44% 52% 59%

0%

10%

20%

30%

40%

50%

60%

70%


3B-11

Probability of failing to have enough savings to generate a combined real replacement rate of 75 percent by household income per person (filters out all households with a defined benefit plan)

<20k 20k-30k 30k-50k 50k-65k >65kSeries 1 13% 50% 52% 67% 71%

0%

10%

20%

30%

40%

50%

60%

70%

80%


3B-12

Probability of failing to have enough savings to generate a combined real replacement rate of 75 percent by family status (filters out all households with a defined benefit plan)

married not married, livingwith a partner

divorced orseparated

single, nevermarried

Series 1 55% 58% 44% 42%

0%

10%

20%

30%

40%

50%

60%

70%


3B-13

Probability of failing to have enough savings to generate a combined real replacement rate of 75 percent by educational level (filters out all households with a defined benefit plan)

some highschool or

less

high schoolgrad

trade orvocational

schoolsome college

4-yearcollegedegree

graduate orprofessional

degreeSeries 1 50% 53% 54% 49% 48% 57%

0%

10%

20%

30%

40%

50%

60%


3B-14

Probability of failing to have enough savings to generate a combined real replacement rate of 75 percent by type of employer (filters out all households with a defined benefit plan)

largecorporation

mediumsized

business

smallbusiness federal govt state or local

govt educational

Series 1 54% 52% 41% 68% 65% 51%

0%

10%

20%

30%

40%

50%

60%

70%

80%


3B-15

How to measure the effectiveness of various sources of information with respect to retirement expectations?

• Unfortunately it is much more difficult than just looking at the previous types of graphs

• Different types of households have different tendencies when it comes to:

• Using an online calculator• Seeking the assistance of a financial advisor• Simply “guessing”

• Also want something more advanced than merely determining whether or not a household sets a goal sufficient to meet a 75 percent replacement rate

• Uses EBRI Retirement Security Projection Model® to simulate 1,000 different alternative retirement scenarios for each household

• Determines the percentage of times they run “short” of money in retirement

Source: Jack VanDerhei and Nevin Adams (March 2013), “A Little Help: The Impact of On-line Calculators and Financial Advisors on Setting Adequate Retirement-Savings Targets: Evidence from the 2013 Retirement Confidence Survey,” EBRI Notes

3B-16

family single female single male lowest 14.6% 18.1% 18.2%second 18.0% 17.6% 17.3%third 16.8% 12.0% 11.4%highest 14.7% 9.3% 8.7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Figure DEstimated Percentage-point Increase in Modified RRRs* for 2013 RCS

Respondents Who Used an Online Calculator to Determine the Savings Target, by relative income quartile and gender/family status

(only those expecting to retire at age 65 and without those expecting

Source: EBRI Retirement Security Projection Model® version 1685.* The modified Retirement Readiness Rating is simulated given the 2013 RCS respondents' age, income, gender, and family status and their response to: "amount you think you (and your spouse) will need to accumulate in total by the time you retire so that you can live comfortably in retirement."

3B-17

family single female single male lowest 9.1% 12.5% 12.6%second 12.3% 12.4% 12.2%third 12.4% 9.1% 8.6%highest 11.0% 6.7% 6.3%

0%

2%

4%

6%

8%

10%

12%

14%

Figure EEstimated Percentage-point Increase in Modified RRRs* for 2013 RCS

Respondents Who Asked a Financial Advisor to Determine the Savings Target (only those expecting to retire at age 65 and without those expecting

defined benefit plans to be a major source of retirement income)


3B-18

family single female single male lowest -5.7% -8.1% -8.3%second -8.0% -8.7% -8.6%third -8.6% -6.8% -6.4%highest -7.8% -5.3% -4.9%

-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

Figure F


Estimated Percentage-point Increase in Modified RRRs* for 2013 RCS Respondents Who Guessed to Determine Their Savings Target

(only those expecting to retire at age 65 and without those expecting defined benefit plans to be a major source of retirement income)

3B-19

WHAT ARE THE IMPLICATIONS OF INACCURATE ASSESSMENTS FOR EMPLOYERS, WORKERS AND PUBLIC POLICY?

3B-20

Employees Delaying Retirement

• According to the results of the “Fourth Plan Sponsor Attitudes Survey” from Fidelity Investments: • Nearly two-thirds (66%) of plan sponsors reported that “some, quite a

few, or all employees” are delaying retirement because they are not prepared;

• More than half (57%) of plan sponsors say they do not believe their participants are saving enough for retirement; and

• Plan sponsors are not confident they fully understand their fiduciary responsibilities, with 42% believing they need help in this area.

Source:http://www.plansponsor.com/Sponsors_See_Many_Employees_Delaying_Retirement.aspx

3B-21

3%6%

14%

25%

10%

26%

7% 8%

21%16%

32%

11%8% 6%

1% 1%

Under 55 55-59 60-64 65 66-69 70 or older Neverretire

Don't know

Workers (n=1003) Retirees (n=251)

One-quarter of Workers Expect to Retire at Age 70 or Later; 7 in 10 Retirees Retired Before Age 65Realistically, at what age do you expect to retire?How old were you when you retired?

MedianWorkers 65Retirees 62


3B-22

Nearly Half of Retirees Indicate Their Retirement Occurred Earlier Than PlannedDid you retire earlier than you planned, later than you planned, or about when you planned? (2013 Retirees n=251)

52%

40%

48%49%45%

40%36%

39%45%

39% 37%40%38% 37%

51%47%

41%45%

50%47%

43%

53%

42%39%

42%

48%52%

48%47%48%52%50%52%

55%

40% 42%

49%46%

37%43%

3% 3%7% 7% 5% 5% 6% 5% 5% 5% 6% 5% 5% 5% 4%

7%4% 3%

9%6%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Earlier Than Planned About When Planned Later Than Planned


3B-23

People Retire Early for a Variety of Reasons, Though Over Half of Retirees Cite Health Problems as a FactorWhy did you retire earlier than you had planned? (2013 Retirees retiring earlier than planned n=127, percent yes)

55%

32%

23%

20%

20%

19%

9%

You had a health problem or disability

You could afford to retire earlier

You had to care for a spouse or another familymember

Changes at your company

You had another work-related reason

You wanted to do something else

Changes in the skills required for your job


3B-24

Workers Are Much More Likely to Think They Will Work in Retirement Than Retirees Actually WorkedDo you think you will do any work for pay after you retire? Have you worked for pay since you retired? (2013 Workers expecting to retire n=931, Retirees n=251)

56%

66% 63% 61%66%

70% 68% 66% 67% 66% 63%72% 70%

74%70% 69%

22%27%

22%26% 24%

28%32%

26% 27%

37%

25%34%

23% 23%27% 25%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Workers Retirees


3B-25

Few Retirees Who Haven’t Already Worked in Retirement Expect to Return to Work

Realistically, how likely do you think you are to work for pay some time in the future? (2013 Retirees not working for pay in retirement n=179)

4% 6%

22%

66%

2%8%

19%

68%

2%8%

21%

67%

4% 6%

19%

71%

Very Likely Somewhat Likely Not Too Likely Not at All Likely

2010 2011 2012 2013


3B-26

03b closing the retirement expectations gap · closing the retirement expectations “gap”:...

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