The Disconnect Between Workers and Retirees

There's a big disconnect between the expectations of workers and the experiences of retirees.
By: | May 15, 2018 • 3 min read
Eggs sitting on money with 401k, saving and IRA written on them to illustrate workers saving for retirement and whether they can live comfortably
Although this year’s Retirement Confidence Survey found that workers’ overall confidence in their ability to live comfortably in retirement rose by four points (from 60 percent in 2017 to 64 percent this year), it also uncovered a key disconnect between workers’ expectations about relying on income from work in retirement, compared to retirees’ actual experience.
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According to the 28th annual survey by the Employee Benefit Research Institute of 1,002 workers and 1,040 retirees, 68 percent of workers expect income from working to be either a major or a minor source of income in retirement, whereas only 26 percent of retirees say that this income is a major or minor source.
The survey found workers also have different expectations around Social Security than retirees have experienced: Only one-third of workers (36 percent) expect Social Security to be a major source of retirement income, compared to 67 percent of retirees who report that Social Security is a major source of income in retirement.
EBRI’s findings also suggest workers may be looking for different ways to fill the retirement-income gap:
* Eight in 10 workers (81 percent) say they expect that a workplace retirement-savings plan, such as a 401(k) or 403(b), will be a major or minor source of income.
* By comparison, half of retirees (48 percent) say this type of plan is not a source of income for them.
* Those with a defined-contribution plan like a 401(k) are far more likely to say they are confident in their ability to live comfortably in retirement: Seventy-six percent of workers with a DC plan are at least somewhat confident in their ability to live comfortably in retirement versus 46 percent of those without a DC plan.
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“Satisfaction with DC plans is very important because that will encourage their use in building up assets for retirement,” said Craig Copeland, EBRI senior research associate and co-author of the report. However, the data suggest many plan participants don’t know what to do with their DC plan assets at retirement. Three in ten (31 percent) say they don’t know whether they will roll the money into an IRA, keep it in the plan or cash it out. At the same time, participants are interested in guaranteed lifetime income options either inside or outside of their plan, which could be due to the lower expected reliance of workers on other guaranteed income sources like Social Security and traditional pension plans.”
According to the survey, four in five current DC participants expressed interest in putting some or all of their money in guaranteed lifetime-income products, regardless of whether the product is an in-plan investment option or a separate product purchased outside of the plan at the time of retirement. Furthermore, 21 percent of current DC participants say they will use their money in their plan to purchase a product that provides guaranteed monthly income for life, a notably larger share than the 7 percent of retirees who report that they have purchased such a product with DC assets.
Web Editor Michael J. O’Brien has been with HRE for more than a decade and holds a degree in economics from Boston College. He can be reached at [email protected]

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