Retirement Savings: Diverse Perspectives and Readiness
The thought of planning for retirement can be daunting, but it is a necessary step for managing your future. American workers reap many benefits when they take responsibility for their financial education and retirement planning throughout their lifetimes, especially as personal needs and economic circumstances change. However, not all workers appear to be clear-eyed or have access to tools to develop a longer-term program for retirement preparedness, including a lifetime financial and health safety net. Retirement savings approaches and perceived preparedness can also vary greatly across different demographic groups and stages of life.
Almost half of Americans (49%) cite outliving their retirement savings as their primary retirement concern, with another 44 percent citing declining health.1 Only 36% of American workers are confident they will be able to retire comfortably. For many, continued economic uncertainty has reduced the value of retirement savings and diminished retirement security. The passage of the Secure Act 2.0 enhances aspects of retirement security by enabling more people to save, improving some of the retirement rules, and lowering costs for employers to set up retirement plans – but it alone is not a panacea.
Varying Perspectives on Retirement Needs, Strategies, and Preparedness
Retirees represent a sizable portion of the adult population, remaining relatively constant during the pandemic. Twenty-seven percent of adults consider themselves to be retired, even though some work in some capacity.2 Retirees cite Social Security as the most common source of retirement income, although 79% have one or more sources of private income. This includes 57% of retirees with income from pension and 43% with interest, dividend, or rental income.
For workers, retirement savings needs and strategies vary. About three-fourths report that they have at least some retirement savings and about one-fourth with no savings at all. Only 40% think that their retirement savings are on track. The most common savings approaches are 55% in defined contribution plans (401(k), 403(b)), 52% savings (non-retirement accounts), 36% in IRAs, and 22% in defined benefit pension plans.
Younger adults are more likely to have less retirement savings but view their savings as being on track compared to older adults. Black and African Americans and Hispanics are also less likely to have retirement savings but view their retirement savings as on track. Lastly, White and Asian workers are more likely to have savings and view that they are on track.
Women, as a group, experience significant retirement and savings setbacks for several reasons. One factor is that women generally earn less than men over their lifetimes due to the persistent gender wage gap. Recent data indicates that women make about 83 cents for every male dollar.3 Women also tend to live longer than men; the current life expectancy for women aged 65 is another 21 years, three more years than for men of the same age.4 Life expectancy for Hispanic women aged 65 is another 23 years, while for Black and African American women aged 65, it is another 20 years.5 Living longer also makes women more susceptible to greater financial risks, including inflation, outliving assets, the death of a spouse and unexpected health costs. Therefore, women generally need more resources to cover a longer retirement period to prevent falling into poverty later in life.
People in all stages of life benefit from being proactive in determining their income needs and evaluating what options work best for them. It’s as if we need to hit a “re-calc” button on our retirement plans, as our circumstances change. While a lot of progress has been made, more options are needed for converting savings into retirement income solutions (guaranteed and non-guaranteed), with increased availability or access via group retirement plans and individual markets. Many factors that contribute to retirement security will continue to unfold, such as life expectancy, economic conditions, and other intangibles. Education and preparation will remain dependable constants in retirement income solutions planning for the foreseeable future.
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1 Aegon Center for Longevity, Transamerica Center for Retirement Studies, and Instituto de Longevidade Mongeral Aegon (Brazil)
2 Board of Governors of Federal Reserve System, 2022 Economic Well-Being of US Households in 2021 Retirement.
3 “These 8 charts show the glaring gap between men’s and women’s salaries in the US,” Business Insider, March 2022
4 WISER’s Top 5 Retirement Challenges for Women, 2021