Confidence Builders
I’ll never forget my first day of driver’s ed class. This was at a time when it was still part of the “regular” school curriculum, and we were placed in groups based on whether or not we had actually driven a car before. Now, at the time, the extent of my driving was no more than backing the family car up and down our short driveway. But driving looked easy enough, and my friends were in the “having driven” group, so I confidently “fudged” the extent of my experience and shortly found myself behind the wheel of the driver’s ed class car, along with my high school basketball coach/instructor and a couple of my friends in back.
To make a long story short, there was quite a bit of difference between backing a car up and down a driveway and navigating a car on the open road. And, but for the extra brake on the instructor’s side of the vehicle, I might have spent my first driver’s ed class waiting to be pulled out of a ditch, my confidence notwithstanding.
The recent release of the 23rd annual Retirement Confidence Survey (RCS) got a LOT of attention.1 The headlines were mostly about Americans’ lack of confidence in their prospects for a financially secure retirement; indeed, the percentage “not at all confident” hit an all-time high for the RCS, while the percentage “very confident” remained at the all-time low it notched a year ago. A striking number of inquiries about the report focused on what could be done about retirement confidence.
Building "Blocks?"
As it turns out, there are several things that the study linked to higher confidence: having more retirement savings is perhaps the most obvious connection, and so is participation in a workplace retirement savings plan (which was also linked to larger savings balances2). However, the RCS also found that something as fundamental as having taken the time to do a retirement needs assessment made a positive difference in confidence3 – even though those who had done such an assessment tended to set higher savings goals.4 However, fewer than half of workers responding to the RCS have completed this assessment, and many of those who have made an attempt to figure out how much they might need – guess.5
Still, asked how much they need to save each year from now until they retire so they can live comfortably in retirement, one in five put that figure at between 20 percent and 29 percent, and nearly one-quarter (23 percent) cited a target of 30 percent or more. Those targets are larger than one might expect, and larger than the savings reported by RCS respondents would indicate. They do, however, suggest that some are beginning to grasp the realities of their situation – a realization that could be weighing on their confidence in the future, even as it lays the foundation for change.
Because, what really matters is not how confident you feel, but whether you have a reason to feel confident.
Nevin E. Adams, JD
1See The 2013 Retirement Confidence Survey: Perceived Savings Needs Outpace Reality for Many
2 According to the 2013 RCS , workers who participate in a retirement savings plan at work (45 percent) are considerably more likely than those who are offered a plan but choose not to participate (22 percent) or are not offered a plan (18 percent) to have saved at least $50,000. These participants are much less likely than others to report having saved less than $10,000 (20 percent vs. 46 percent who choose not to participate and 50 percent who are not offered a plan).
3 A great place to start figuring out what you’ll need is the BallparkE$timate®, available online at www.choosetosave.org. Organizations interested in building/reinforcing a workplace savings campaign can find a variety of free resources there, courtesy of the American Savings Education Council (ASEC). Choose to Save® is sponsored by the nonprofit, nonpartisan Employee Benefit Research Institute Education and Research Fund (EBRI-ERF) and one of its programs, the American Savings Education Council (ASEC). The website and materials development have been underwritten through generous grants and additional support from EBRI Members and ASEC Partner institutions.
4 The RCS found that 31 percent who have done a calculation, compared with 14 percent who have not, say they are very confident that they will be able to accumulate the amount they need, while 12 percent who have not done a calculation, compared with 3 percent who have, report they are not at all confident in their ability to save the needed amount.
5Workers often guess at how much they will need to accumulate (45 percent), rather than doing a systematic, retirement needs calculation, according to the RCS, while 18 percent indicated they did their own estimate, another 18 percent asked a financial advisor, 8 percent used an on-line calculator, and another 8 percent read or heard how much was needed.
To make a long story short, there was quite a bit of difference between backing a car up and down a driveway and navigating a car on the open road. And, but for the extra brake on the instructor’s side of the vehicle, I might have spent my first driver’s ed class waiting to be pulled out of a ditch, my confidence notwithstanding.
Building "Blocks?"
As it turns out, there are several things that the study linked to higher confidence: having more retirement savings is perhaps the most obvious connection, and so is participation in a workplace retirement savings plan (which was also linked to larger savings balances2). However, the RCS also found that something as fundamental as having taken the time to do a retirement needs assessment made a positive difference in confidence3 – even though those who had done such an assessment tended to set higher savings goals.4 However, fewer than half of workers responding to the RCS have completed this assessment, and many of those who have made an attempt to figure out how much they might need – guess.5
Still, asked how much they need to save each year from now until they retire so they can live comfortably in retirement, one in five put that figure at between 20 percent and 29 percent, and nearly one-quarter (23 percent) cited a target of 30 percent or more. Those targets are larger than one might expect, and larger than the savings reported by RCS respondents would indicate. They do, however, suggest that some are beginning to grasp the realities of their situation – a realization that could be weighing on their confidence in the future, even as it lays the foundation for change.
Because, what really matters is not how confident you feel, but whether you have a reason to feel confident.
Nevin E. Adams, JD
1See The 2013 Retirement Confidence Survey: Perceived Savings Needs Outpace Reality for Many
2 According to the 2013 RCS , workers who participate in a retirement savings plan at work (45 percent) are considerably more likely than those who are offered a plan but choose not to participate (22 percent) or are not offered a plan (18 percent) to have saved at least $50,000. These participants are much less likely than others to report having saved less than $10,000 (20 percent vs. 46 percent who choose not to participate and 50 percent who are not offered a plan).
3 A great place to start figuring out what you’ll need is the BallparkE$timate®, available online at www.choosetosave.org. Organizations interested in building/reinforcing a workplace savings campaign can find a variety of free resources there, courtesy of the American Savings Education Council (ASEC). Choose to Save® is sponsored by the nonprofit, nonpartisan Employee Benefit Research Institute Education and Research Fund (EBRI-ERF) and one of its programs, the American Savings Education Council (ASEC). The website and materials development have been underwritten through generous grants and additional support from EBRI Members and ASEC Partner institutions.
4 The RCS found that 31 percent who have done a calculation, compared with 14 percent who have not, say they are very confident that they will be able to accumulate the amount they need, while 12 percent who have not done a calculation, compared with 3 percent who have, report they are not at all confident in their ability to save the needed amount.
5Workers often guess at how much they will need to accumulate (45 percent), rather than doing a systematic, retirement needs calculation, according to the RCS, while 18 percent indicated they did their own estimate, another 18 percent asked a financial advisor, 8 percent used an on-line calculator, and another 8 percent read or heard how much was needed.
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