Americans Need a Reality Check About Their Retirements
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The 2006 Retirement Confidence Survey was recently released by the Employee Benefit Research Institute (EBRI). The survey indicates that many American workers have an unrealistic view of what lies ahead for them in retirement.
For example, nearly two-thirds (61%) of surveyed workers expect to get retirement income from a traditional defined-benefit company pension plan. Yet only 40% of working couples are even covered by such plans today. The clear trend in corporate America is to move away from these plans - as evidenced from announcements by GM. IBM, Verizon and other major companies. Moreover, the norm today is for workers to change employers several times over the course of a career. Traditional pension programs primarily benefit workers who are able to stay with one employer for most of their careers.
The survey also found that most workers have only modest nesteggs set aside for retirement:
More than half of workers saving for retirement report total savings and investments (not including the value of their primary residence or any defined benefit plans) of less than $50,000 (52 percent). However, the large majority of workers who have not put money aside for retirement have little in savings at all: Three-quarters of these workers say their assets total less than $10,000 (75 percent).
Interestingly, home equity and/or reverse mortgages are not viewed as major sources of retirement income:
Many workers may be basing their expectations about where their retirement income will come from on shaky assumptions. While more than 6 in 10 retirees cite guaranteed sources, such as Social Security (43 percent) and an employer-provided pension (20 percent), as their largest source of income in retirement, almost half of workers are planning to rely on their own savings for their largest source (Figure 14). Fourteen percent each say they expect that money from a work-place retirement savings plan, such as a 401(k), or an IRA will provide their largest share. Two in 10 say it will come from other personal savings or investments (20 percent). In contrast to retirees, approximately one-third of workers expect their largest share of income will come from Social Security (20 percent) or an employer-provided pension (14 percent). Far fewer say the largest share of their retirement income will come from employment (6 percent), the sale or refinancing of their home (3 percent), an inheritance (3 percent), or some other source.
This is further indication that more education is needed on the role that home equity can play in retirement. The EBRI survey contains other useful insights that we’ll comment in coming days.
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April 18th, 2006 at 6:39 am
[…] A few days ago, we wrote about the need for American to have a reality check about retirement. […]
May 8th, 2006 at 11:22 am
[…] At first blush, the survey results don’t appear encouraging for those looking to home equity to bail Americans out of a jam. This may be further reflection of the apparent overconfidence felt by Americans when it comes to their retirement prospects: “…60% of homeowners stated they did not plan to sell their homes to finance retirement, and close to 70% of respondents felt there was a minimal (10% or less) chance they would sell their homes to pay for retirement. In other words, most older Americans report they will not sell their homes to finance retirement, even though this store of wealth is accessible for consumption purposes.” […]