Workers Who Feel Stressed About Retirement Are Failing to Take Action

Workers Who Feel Stressed About Retirement Are Failing to Take Action

Many American workers who report feeling stressed about retirement admit they are not taking the steps necessary to prepare for their financial future, the results of an annual survey conducted by the Employee Benefit Research Institute (EBRI) and Greenwald & Associates indicated.

The 2017 Retirement Confidence Survey (RCS) was conducted January 6-13 with 1,671 U.S. residents (1,082 workers and 589 retirees) aged 25 and older. The results showed that 31% of workers feel mentally or emotionally stressed about preparing for retirement, and that 30% worry about their personal finances while at work. Of these respondents, half said they think they would be more productive at work if they did not spend time worrying.

When asked whether they believe that having access to programs at work that help them plan for their financial future would be helpful in increasing their productivity, around half of all of the workers surveyed said they believe they would benefit from participating in retirement planning (52%), financial planning (49%), or health care planning (47%) programs.

The results also showed, however, that many workers are not yet taking critical retirement planning steps. While 61% of the workers surveyed said they have saved for retirement, just 41% indicated that they have tried to figure out how much money they will need in retirement, 38% said they have estimated how much income they would need each month in retirement, another 38% reported that they have estimated the amount of their Social Security benefit, and 34% indicated that they have estimated their expenses in retirement. In addition, just 23% of the workers surveyed said they have spoken with a professional advisor about retirement planning, and only 11% reported that they have prepared a formal plan for retirement.

In line with earlier waves of the survey, the 2017 wave indicated that far more retirees than workers feel confident that they will be able to afford a comfortable retirement. Almost 80% of the retirees surveyed said they feel confident about having enough money to live comfortably throughout their retirement years, including 32% who said they feel very confident.

The results also showed that workers who believe their debt is a major problem have notably lower levels of retirement confidence: 32% of these workers said they are confident about retirement, compared with 78% of workers who indicated that debt is not a problem for them. Moreover, the workers who said they have a retirement plan appear to have markedly higher confidence than those who did not: 33% of those who lack a retirement plan said they are confident about retirement, compared with 71% of those who have a plan.

Of the workers who reported that they are not currently saving for retirement, 73% said they would be at least somewhat likely to save for retirement if their contributions were matched by their employer, and approximately two-thirds said they would be likely to save for retirement if automatic paycheck deductions of either 3% or 6% of salary were used by their employer.

The findings further indicated that workers are far less confident than retirees about being able to afford health care in retirement: 54% of workers said they are confident about being able to afford medical expenses in retirement, compared to 77% of retirees.

From Benefit Trends Newsletter, Volume 60, Issue 4

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2017 Liberty Publishing, Inc. All rights reserved.

Cognitive Aging Could Affect the Ability to Delay Retirement

Cognitive Aging Could Affect the Ability to Delay Retirement

Working longer has been suggested as an effective way to boost Americans’ retirement security, but setting a higher standard retirement age overlooks the problem that a minority of workers may experience levels of not just physical, but cognitive decline that could negatively affect their job performance, a study published in November 2016 by the Center for Retirement Research at Boston College warned.

The study, “Cognitive Aging and the Ability to Work,” was written by economists Anek Belbase and Geoffrey T. Sanzenbacher. The authors cited previous research showing that as workers age, they tend to experience a decline in “fluid” intelligence, or the capacity to process new information. It has also been shown, however, that most older workers are able to maintain their productivity despite this loss of fluid intelligence because their “crystallized” intelligence, or their accumulated knowledge, tends to increase; and because their cognitive reserves continue to exceed the demands of the job.

The researchers explained that as workers grow older and more experienced in their job, their crystallized intelligence offsets declines in fluid intelligence because the amount of information they need to learn decreases, and the steady accumulation of knowledge over time makes up for their loss of fluid capacity. Moreover, workers who perform simple or routine tasks may have more fluid intelligence than their job demands. For example, the authors said, many clerical positions require workers to perform routine activities that become automatic with time, leaving such workers with enough fluid capacity in reserve to act as a buffer against decline.

However, Belbase and Sanzenbacher noted that certain types of workers may struggle to maintain their productivity as they age, including those in high-skilled occupations with an intense demand for fluid intelligence, those who switch jobs later in life and therefore lack the crystallized intelligence needed to compensate for a loss of fluid intelligence, and those who experience unusually severe levels of cognitive decline.

To demonstrate the interplay of crystallized and fluid intelligence, the researchers cited a study of the performance of air traffic controllers that asked participants to re-route two planes on a collision course. The results showed that older controllers performed substantially worse than younger controllers, and no better than younger study participants with no training in air traffic control. In light of such evidence, the researchers noted, air traffic controllers are required to retire by age 56.

The authors also pointed to previous research showing that while the risk of dementia remains low among people in their fifties and early sixties, at about 4%; this risk rises to 15% among people aged 65-74. They also observed many individuals who develop severe dementia in their seventies start to exhibit significant symptoms while in their sixties.

Based on these findings, Belbase and Sanzenbacher recommended that as the retirement age rises, employers have screening programs in place to identify older workers who are suffering from cognitive decline—especially if these workers are performing tasks that have high cognitive demands or in which errors could significantly harm others. “Screening could protect the public from harm and potentially allow the cognitively impaired to qualify for retirement under the disability program,” the authors said.

From Benefit Trends Newsletter, Volume 60, Issue 3

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2017 Liberty Publishing, Inc. All rights reserved.

Employers Plan To Do More to Boost Employee Retirement Savings

Employers Plan To Do More to Boost Employee Retirement Savings

Most sponsors of 401(k) plans report that they are dissatisfied with their workers’ current retirement savings rates, and plan to use a number of initiatives to increase savings rates and improve their employees’ financial well-being, the results of a recent survey conducted by human resources consultancy Aon Hewitt indicated.

The survey asked more than 250 U.S. employers (representing nearly nine million workers) about their retirement benefit priorities, and about the changes they are likely to make to their retirement plans. The results, which were released on January 15, showed that just 15% of the retirement plan sponsors surveyed are satisfied with their workers’ current retirement savings rates, and that nearly all of the employers (90%) surveyed are concerned about their workers’ level of understanding about how much they need to save to achieve adequate retirement savings. The findings also indicated, however, that nearly all of the employers (87%) who said they are not satisfied with their employees’ savings rates are likely to take action this year to help workers make plans to reach their retirement goals.

The results further suggested that employers are increasingly taking an interest in the issue of financial wellbeing: 60% of respondents said they believe that this issue has grown in importance over the past two years. The survey also showed that 92% of respondents intend to focus on the financial well-being of workers in ways that extend beyond planning for retirement, such as helping workers better manage their student loan debts, their day-to-day budgeting, and even their physical and emotional wellbeing. Moreover, the results indicated that 58% of respondents currently have a tool available that covers at least one aspect of financial wellbeing, and that 84% expect to offer such a tool by the end of the year.

Researchers also observed that employers are taking the lessons learned from automatic enrollment and enhanc-ing their automatic features to boost savings rates, citing a separate 2015 report that showed that more than half of all plans with automatic enrollment default workers at or above the company match threshold. The report further indicated that employers are adding contribution escalation features and enrolling—or “backsweeping”—workers who were not previously enrolled in the 401(k) plan.

From Benefit Trends Newsletter, Volume 60, Issue 2

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2017 Liberty Publishing, Inc. All rights reserved.

Middle-Income Americans Want More Help with Retirement Planning

Middle-Income Americans Want More Help with Retirement Planning

Although most American workers believe they would benefit from help with planning for retirement and other financial goals, middle-income workers face more barriers than their upper-income counterparts in obtaining high-quality advice from the financial services industry, according to the findings of a survey conducted by investment advisor Financial Engines.

The survey of 1,760 full-time U.S. employees who currently participate in an employer-sponsored defined contribution retirement plan was fielded between May 23 and June 2, 2016. Only 37% of the middle-income survey respondents (with an annual income between $35,000 and $100,000) reported having a comprehensive financial plan, compared to 48% of the upper-income respondents (with an annual income of $100,000+).

The findings also indicated that wealthier workers tend to have more comprehensive financial plans than their middle-income counterparts. For example, the survey found that middle-income respondents were significantly less likely than upper-income respondents to report having a financial plan that addresses saving for a child’s college education (41% versus 61%), purchasing life or disability insurance (67% versus 83%), or estate planning (57% versus 77%). The results further showed, however, that relatively few middle- and upper-income employees have financial plans that address important topics such as the adequacy of a savings rate to achieve retirement goals or strategies to maximize Social Security benefits.

In addition, the survey explored the differences between workers who do and do not have financial plans. The findings indicated that across income levels, the respondents with a financial plan reported saving a median of 10% of their salary toward retirement, whereas the respondents without a plan reported saving a median of 6% of their salary toward retirement.

The survey also found that workers have a strong interest in accessing financial planning assistance through their employer: 57% of all respondents and 72% of middle-class respondents with a financial plan said that they are very or extremely interested in accessing financial planning help via the workplace. In addition, 53% of respondents who said they are interested in financial planning services agreed that having their employer select an advisory service that operates as a fiduciary, or acts in the employee’s best interest, is a major advantage. Middle-income respondents who already have a financial plan were also more likely than all respondents (52% versus 44%) to agree that having a financial planner vetted by their employer is a major advantage.

From Benefit Trends Newsletter, Volume 60, Issue 1

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2017 Liberty Publishing, Inc. All rights reserved.

Retirement Plan Savings Steady in the First Half of 2016

Retirement Plan Savings Steady in the First Half of 2016

The patterns of saving for retirement through defined contribution (DC) plans during the first half of 2016 were roughly unchanged from the corresponding patterns in the first six months of the previous year, according to a study of retirement plan savers’ actions released by the Investment Company Institute (ICI).

The study, published on October 27, tracked contributions, withdrawals, and other activity through the first six months of 2016 using DC plan recordkeeper data covering around 28 million participant accounts in employer-based DC plans. The study’s authors stressed that DC plans are an important component of Americans’ retirement saving; with assets in all DC plans accounting for about one-tenth of U.S. households’ aggregate financial assets at the end of June 2016.

The results of the analysis indicated that savers remain committed to DC plans, as nearly all employees who were participating in plans in 2015 continued contributing during the first half of 2016. Noting that only 1.8% of DC plan participants stopped contributing in the first half of 2016, or the same share as in 2015; researchers speculated that some of these participants may have stopped contributing simply because they reached the annual contribution limit.

The analysis further showed that withdrawal activity for DC plans remained low in the first half of 2016, as in the first six months of 2015. Levels of hardship withdrawal activity were also found to be low, with 0.8% of DC plan participants taking hardship withdrawals during the first half of 2016, compared with 0.9% in the first half of 2015.

In addition, the study found that most DC plan participants stayed the course in their asset allocations, as stock values edged up during the first six months of the year. Specifically, the findings indicated that during the first half of 2016, 6.5% of DC plan participants changed the asset allocation of their account balances, and 5.5% changed the asset allocation of their contributions. The results also showed that compared with the same time frame a year earlier, account balance reallocation activity was little changed in the first half of 2016, and contribution reallocation activity was slightly lower.

An examination of DC plan participants’ loan activity revealed that it was little changed in the first half of 2016: at the end of June 2016, 17.1% of DC plan participants had loans outstanding, compared with 17.0% at the end of March 2016, and 17.4% at year-end 2015. According to researchers, two factors seem to be influencing DC plan participants’ loan activity: a seasonal pattern, whereby the share of plan participants with loans outstanding tends to be lower in the first quarter of the year than in later quarters; and financial stresses. The study’s authors observed that—likely in response to the recession—the percentage of DC plan participants with loans outstanding rose from the end of 2008 (15.3%) through 2011 (18.5%); but that the share of DC plan participants with loans outstanding then leveled out in 2012 through 2015, possibly because participants were taking out loans to support consumer spending or home purchases.

From Benefit Trends Newsletter, Volume 59, Issue 12

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2016 Liberty Publishing, Inc. All rights reserved.

Student Loan Debt May Be Interfering with Retirement Saving

Student Loan Debt May Be Interfering with Retirement Saving

In addition to representing a drain on their short-term finances, workers who are paying off student loans may feel the burden of these debts into their retirement years, the results of an annual survey conducted by human resources consultancy Aon Hewitt indicates.

The survey of more than 2,007 U.S. workers conducted from May 24 to June 3, 2016, found that 28% of respondents currently have an outstanding student loan—and that not all of these workers are young. The findings showed that 44% of the millennials (born 1979-1996), 26% of the Gen Xers (born 1965-1978), and 13% of the baby boomers (born 1946-1964) surveyed have outstanding student loans; and that roughly half of these respondents are making at least $3,000 in loan repayments each year.

The results further suggested that carrying student loan debt can have a long-term impact on workers’ financial future: while the survey respondents with student loans reported participating in employer-provided retirement plans at a rate that is only slightly lower than that of workers without loans (71% compared to 77%), more than half (51%) of the respondents with student loans said they are contributing no more than 5% of their pay to the plan. Researchers warned that saving less than 6% of pay can significantly affect retirement readiness, especially if employees are missing out on full company matching contributions.

Moreover, the survey found that employees with outstanding student loans are more pessimistic about their financial wellbeing than those without these debts. Of the respondents with student loans, 51% said that debt is ruining their quality of life, compared to 28% of those without loans; 54% indicated that they spend time at work dealing with financial issues, compared to 47% of those without student loans; 31% said they are worried about paying their bills, whereas only 20% of respondents without loans share this concern; 56% said they are concerned about saving for the future, compared to 41% of those without loans; and just 27% said they are financially comfortable, compared to 43% of those without loans.

Yet relative to the employees surveyed in 2015, a greater share of all of the workers surveyed in 2016 said they feel in control of their financial future (75% compared to 73% in 2015), and even more describe themselves as financially savvy (72% compared to 65% in 2015). Researchers pointed out that these positive perceptions continue to be higher among men than women, and higher among millennials than among other generations. However, despite describing themselves as financially savvy or feeling in control, more respondents in 2016 indicated that financial matters, including the idea of approaching an advisor, intimidate them; and that debt is ruining their quality of life.

From Benefit Trends Newsletter, Volume 59, Issue 11

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2016 Liberty Publishing, Inc. All rights reserved.