Where Withal?

For several years now, the Employee Benefit Research Institute (EBRI) has been publishing its Retirement Confidence Index. This year, as in years past, the index painted a relatively rosy picture from the standpoint of workers – with sizeable minorities and/or majorities feeling pretty good about their retirement living prospects despite having no real idea how much they were going to need, alongside an optimistic sense of how long they would live in retirement, and how much of their pre-retirement income they would need to live on. A sizeable minority also appears to be counting on receiving a pension to supplement those needs – and they also seem to be counting on the help of employer-provided retiree health-care insurance, though both are in increasingly short supply these days. In fact, based on its findings, one is tempted to retitle it the Retirement Over-Confidence Index.

What’s interesting to me, however, is not the respondents’ blithe assumptions about their prospects for a secure retirement (for weeks now, the personal finance columnists have had a field day with that) – it’s the astounding level of realism about some of the places it won’t come from. Just 3% are looking toward an inheritance, for example, and a like miniscule number are anticipating a source being the sale or refinancing of their home. Just 14% cited a workplace savings plan/401K, matching the number who cited money from an IRA or an employer-provider pension – and just one-in-five noted Social Security as a source. And, despite the reports that Boomers, particularly, plan to continue working in retirement, only 6% of the EBRI survey respondents cited employment as a source of retirement income (though about two-thirds said they planned to work post-retirement).

In fact, if you look at all the places that retirement income WON’T come from, you might get to thinking that workers aren’t that far off base in their expectations. But then, you peel off all these realistic assumptions and you’re left with 48% who claim that “personal savings” will constitute an expected source of income in retirement. Not the kind of personal savings we typically think of – not their 401k, not a recaptured investment in a personal residence, not even from an IRA. And that’s where it all breaks down for me – because I just don’t see people saving outside of those vehicles.

Now, it is possible that there is a world of saving going on that just isn’t showing up on our collective radar screens – though I doubt it. What seems more likely is that people DO understand that they aren’t saving enough in those workplace plans and IRAs, that they have no real expectation that Social Security will be there for the fullness of their retirement, and they see no rich uncle in their family trees. And maybe, just maybe, their growing awareness of where it ISN’T going to come from can be part of a broader understanding about where it needs to come from.

- Nevin Adams editors@plansponsor.com

The EBRI Retirement Confidence report is online at http://www.ebri.org/pdf/briefspdf/EBRI_IB_04-20061.pdf