Americans have high anxiety about their retirement: How employers can lend support

Americans have widespread anxiety about retirement, according to a new report that analyzed multiple surveys examining America’s retirement situation.

The report from the Schwartz Center for Economic Policy Analysis (SCEPA) at The New School for Social Research examines eight prominent surveys of American’s retirement situation, revealing wide-ranging findings on how people feel about their retirement.

The surveys on retirement confidence that were conducted by government bodies, research groups, and industry advocates – by telephone, online through a web portal or via e-mail – show a wide range of retirement anxiety:

• 71%: Gallup
• 66%: Survey of Household Economics and Decision-making (SHED)
• 61%: AARP
• 56%: National Institute on Retirement Security (NIRS)
• 42%: Goldman Sachs
• 38%: VoYa
• 33%: Economic Innovation Group
• 32%: Employee Benefits Retirement Institute

While these surveys report varying retirement anxieties, the overall results show that retirement stress differs based on a person’s age, gender, economic and educational levels, and whether they are employed or retired.

The widespread anxiety Americans face over retirement both reflects and masks the grim reality they face.

• Households aged 55-64 have a median retirement account balance of just $10,000, while even the more fortunate half of pre-retirement households have a median balance of only $134,000. These balances are not nearly enough for a secure retirement.
• Households aged 65 and over have a median account balance of $0, and only 36.9% of workers in this older age bracket are saving in a retirement account.

“Other countries just make it easier for people to save for retirement – their retirement systems require mandatory retirement accounts, extend coverage to more people and use simplified retirement savings instruments,” said Karthik Manickam, Research Associate at SCEPA. Why does the US system do so badly in comparison to other peer countries? A SCEPA brief, What Can the United States Learn from the Rest of the World’s Retirement Systems?, discusses how mandating coverage, plugging leakages, professionalizing investments, and adding annuities would vastly improve the United States’ retirement system, he said.

The Schwartz report cites four main psychological reason why people may be more confident about their retirement planning than they should be:

1. Each person’s sense of time is different: Retirement confidence questions are about the future, people’s capabilities and each’s person’s sense of time, and the future is context-dependent and differs by personality.
2. How questions are asked influences response: If asked whether their savings are on track to meet their goals, what “on track” means to one person may be unclear.
3. Surveys can be unreliable: Surveys on paper asking the respondent to fill out and mail it may be more accurate than those emailed, which only draw responses from people who are comfortable with technology.
4. People are bad at math: NIRS detected an unfounded level of cheeriness when asked, “How far $100,000 will last in retirement?” Only 8% of those polled could accurately guess that $100,000 would yield a lifetime benefit of around $4,000 a year.

Related: The retirement crisis is real: 55M American workers don’t have access to a 401(k)

Despite all the differences, the underlying theme is clear, said the Schwartz Center report: Americans are worried about their retirement. Fortunately, there is a bill in Congress – the Retirement Savings for American Act – that would provide every qualified worker with a retirement plan account if their employer doesn’t provide one, the report points out.

However, employers need to better communicate with employees on the importance of saving for retirement, said Manickam. “It’s important for employers to actively encourage their employees to maximize 401(k) contributions and then match them,” he said. “However, the problem isn’t that people don’t know they should be saving for retirement – it’s that it can be incredibly difficult for people to do so, especially for the bottom 50% of workers.

“Any financial literacy programs or tools that actively encourage the average employee to contribute the maximum amount to their 401(k)s, get their employer match and avoid paying high fees to actively managed funds. Ultimately, however, the retirement crisis needs systemic solutions – A Gray New Deal that mandates pensions, expands Social Security, and finances long-term care.”