Saving Too Little, Knowing Too Little, But Still Confident About Retirement

The good news (seemingly) is that a majority of Americans believe they’ll have enough money to retire in comfort. For many of them, though, that’s actually bad news, since their confidence has little basis in reality. In the annual Retirement Confidence Survey (RCS), released this month, 21 percent of workers said they’re “very confident” they’ll have enough money to retire comfortably; 45 percent are “somewhat confident.” A joint project of the Employee Benefit Research Institute, American Savings Education Council and Mathew Greenwald & Associates, the study says these numbers have held up well amid the bear market. But that’s for a not-so-great reason: “Half of all workers have no stocks or mutual funds, either inside or outside of a workplace retirement savings plan.” It’s not just that workers have inadequate assets salted away. The overarching problem is one of ignorance: 61 percent of workers “have not calculated how much money they will need to save by the time they retire”; of those who have made such a calculation, 36 percent “do not know or remember how much they will need to save by the time they retire.”

In what sounds like a concession to reality, baby boomers are pushing back their planned retirement age. Likewise, 70 percent of workers plan to continue toiling for pay after they’ve formally retired. The catch is, many may end up being unable to work. The study notes that four in 10 current retirees “retired earlier than they had expected, some for reasons beyond their control.” Poor health was foremost among these.

Given the shrinkage in their 401(k) accounts in the past few years, people should be saving more. Instead, many are saving less. An article this month in U.S. News & World Report cited data showing a decline in the number of eligible employees who contribute to 401(k) accounts, from 77 percent in 1999 to 73 percent today. There’s been a similar drop in the percentage of their income people put into those accounts. At the same time, more and more companies are eliminating or reducing their contributions to employees’ accounts—which, in turn, further depresses workers’ inclination to save.

The 1990s are already scorned as a period of wretched excess, but it was also a time in which people who invested their spare cash saw their gratification-deferring behavior rewarded (albeit only temporarily, as it turns out). As for those who spent the boom years frittering away their dough on wine, women and song, the opportunity cost of doing so never seemed higher. Since then, of course, the stock market’s dismal performance has narrowed the wealth gap between the provident and the improvident. People who virtuously maxed out their 401(k) contributions during those years must wonder whether they should have done more frittering themselves.