Are Defined Contribution Participants Delusional?

Workers are gonna work for a very long time

401k, retirement, stress, TransamericaThis guy's a mess of contradictions.

One in seven workers plans to live to age 100 or older, and workers overall estimate they’ll live to a median age of 90. However, only 18 percent are very confident they’ll fully retire with a comfortable lifestyle.

Those are the eye-opening findings from a new survey from Transamerica Center for Retirement Studies.

“Today’s workers are expecting to live long lives and, in doing so, they are disrupting retirement as we once knew it,” Catherine Collinson, president of TCRS, said when commenting on the report, titled Wishful Thinking or Within Reach: Three Generations Prepare for ‘Retirement. “The big question is whether their vision is wishful thinking or within their reach.” Many are envisioning retirement as a new chapter in life that involves continued work but with more free time to pursue personal interests,”

Travel (70 percent), spending more time with family and friends (57 percent), and pursuing hobbies (50 percent) top the list of workers’ most frequently cited retirement dreams.

A noteworthy three in 10 workers cite some form of paid work as a retirement dream, including pursuing an encore career, starting a business, and/or continuing to work in the same field.

The survey finds that more than half of workers expect to retire after age 65 or do not plan to retire and 56 percent plan to continue working at least part-time in retirement.

Among them, 83 percent cite financial-related reasons for doing so, while 75 percent cite healthy aging-related reasons, such as “being active,” and “keeping my brain alert.”

Fifty-seven percent of Generation X and 55 percent of Baby Boomers cite outliving their savings and investments as one of their greatest retirement fears. Forty-seven percent of Millennials fear that they will be unable to meet the basic financial needs of their family when they retire. Seventy-six percent of all workers are concerned that Social Security will not be there for them when they are ready to retire.

The Fragile Financial Well-Being of Workers

The survey’s findings illustrate the issues workers are facing:

  • Paying off debt and saving for retirement are formidable competing priorities. Paying off debt is a financial priority found among two out of three workers. Generation X (72 percent) and Millennials (67 percent) are more likely to cite it than Baby Boomers (59 percent). In contrast, 57 percent of workers cite saving for retirement as a priority, with Baby Boomers (72 percent) being more likely than Generation X (61 percent) and Millennials (45 percent) to do so.
  • Many are not saving enough for retirement. Baby Boomers have saved $164,000 (estimated median) in all household retirement accounts, Generation X has saved $72,000 (estimated median), and Millennials have saved $37,000 (estimated median) – these savings are needed to last two or more decades in retirement.
  • Approximately three in 10 workers have dipped into their retirement accounts. Twenty-nine percent of workers have taken a loan, early withdrawal, and/or hardship withdrawal from a 401(k) or similar plan or IRA, a finding which is highest among Generation X (34 percent) and slightly lower among Millennials (28 percent) and Baby Boomers (26 percent). Among workers who have taken a loan, the most frequently cited reasons are to pay off debt (35 percent), a financial emergency (24 percent), and medical bills (23 percent).
  • Emergency savings are lacking. Many workers lack emergency savings that could help cover the cost of a major financial setback (e.g., unemployment, medical bills, home repairs, auto repairs, other). They have saved $5,000 (median) for such emergencies. Baby Boomers have saved $10,000 (median) which is more than Generation X ($4,000 median) and Millennials ($2,000 median).

Better Preparation Can Lead to Brighter Outcomes

“Despite the all-too-real challenge of saving, many workers are overlooking opportunities that may help them improve their long-term financial prospects,” Collinson added.

Specific missed opportunities include:

  • Resisting procrastination. Forty percent of workers prefer not to think about or concern themselves with retirement investing until they get closer to their retirement date, a finding which is highest among Millennials (54 percent) followed by Generation X (34 percent) and Baby Boomers (25 percent).
  • Calculating retirement savings needs. Forty-seven percent of workers who provided an estimate for their retirement savings needs did so by guessing, a survey finding that is consistent across the three generations of workers. Only seven percent have used a retirement calculator.
  • Formulating a written strategy for retirement. Sixteen percent of workers have set forth a retirement strategy in writing. Ironically, Baby Boomers (12 percent) and Generation X (15 percent) are less likely than Millennials (20 percent) to have a written strategy.
  • Taking steps to be able to continue working past 65 or in retirement. Less than half of workers (46 percent) are keeping their job skills up to date, a finding that is consistent across the three generations. Only 18 percent are scoping out the job market and opportunities available, a finding that is higher among Millennials (22 percent) than Generation X and Baby Boomers (both 15 percent).

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