The latest report released today by the Employee Benefit Research Institute (EBRI) finds a concerning dip in retirement confidence among American workers, and the first significant decline since the 2008 financial crisis.
EBRI’s 33rd annual retirement confidence survey found both workers’ and retirees’ confidence in having sufficient retirement savings fell from 73% in 2022 among those very or somewhat confidence, to 64% among workers, and from 77% to 73% among retirees.
Eighteen percent of workers in the survey report feeling very confident, with 27% of retirees stating the same. Of those who said they do not feel assured, four in 10 workers and a quarter of retirees explained it’s because they have little to no savings.
Inflation heightens concerns among Americans
The market swings of 2022 and 2023 has had a lasting impact on Americans, with 29% of workers and 42% of retirees pointing to this as the reason they’re insecure over retirement savings.
In fact, EBRI reports that both workers and retirees showed high concerns about inflation and its effect on savings and spending. Almost nine in 10 workers are concerned that inflation will stay high for another year, while eight in 10 workers and retirees are also anxious about a recession in the next year.
These concerns haven’t only influenced financial attitudes among workers and retirees, but its impacted retirement accounts, too. According to EBRI, 40% of workers and 58% of retirees report a decrease in their retirement account balances over the past 12 months.
Of those who saw a decline in their retirement account balances, one-third report a decline by 1% to 10%, and half report a drop of 11% to 25%. Three-quarters of those who experienced a decrease report concerns over their retirement account balances
“It’s a drop that we haven’t seen since the recession in 2008,” said Craig Copeland, director of Wealth Benefits Research at EBRI, in an interview with 401(k) Specialist. “This time around, people are most concerned about inflation and what had happened in their retirement account, where they’ve experienced a decline in their account balance over the last 12 months. They are also concerned that inflation would persist into a recession.”
Eighty-four percent of workers and 67% of retirees in EBRI’s report showed concerns over the rise in cost-of-living and whether it will prevent them from saving money, while four in 10 workers and three in 10 retirees are not confident their money will keep pace with inflation.
As a result, close to three-quarters (73%) of workers and over half (58%) of retirees say they may have to make major cuts to their spending.
Because of the volatile markets in the last year or so, more workers have opted for more conservative investments in their workplace retirement plan (16% vs. 9%) and have contacted their workplace retirement plan provider for advice (12% vs. 7%).
Understanding retirement plan investments
While workers believe they understand the investment options offered in their workplace retirement plan, EBRI’s report finds that they likely don’t. Even as seven in 10 workers are confident in their ability to choose the right investment options, four in 10 admit they don’t understand target-date funds (TDFs), three in 10 aren’t knowledgeable about managed accounts, and half don’t understand environmental, social, and governance (ESG) investment options.
Instead of seeking help from a financial advisor, EBRI found a large portion of workers (40%) are turning to their friends or family for information on retirement planning, and only two in 10 are asking their retirement plan provider for help. Overall, about two in five workers and one in five retirees say they do not know who to go to for good financial or retirement planning advice.
It’s not all bad news however—a third of workers and four in 10 retirees say they use a personal financial advisor for retirement planning information and advice, and EBRI found financial advisors are the most trusted source for both workers and retirees. Half of workers who do not currently work with an advisor believe they will in the future.
Additionally, it’s important to note that younger investors may not be planning for retirement at the moment, adds Copeland. Paying down student loan debt and affording a mortgage or rent, along with higher day-to-day costs, are all going to take precedent over retirement planning for most. While those are immediate concerns, he recommends advisors eventually steer investors towards retirement planning—and sooner rather than later.
“We also can’t forget about retirement planning, because then that money that you put away in your 20s will be able to compound a lot longer than if you wait until your 40s to start investing,” he explained.
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
