Americans’ Retirement Confidence at Historically Low Levels

by: Dennis Zuehlke, Compliance Manager, Ascensus

The proverbial three-legged stool of retirement is getting more wobbly than ever. Job insecurity, high debt levels, and lack of savings are keeping Americans’ confidence in their ability to retire comfortably at historically low levels, according to the Employee Benefit Research Institute’s (EBRI) 2012 Retirement Confidence Survey. The EBRI survey found that Americans’ confidence has plateaued at the lowest levels EBRI has seen in more than 20 years of conducting the annual survey.

Our parents counted on the three-legged stool of retirement savings—Social Security, defined benefit pension plans, and personal savings—to see them through their retirement years. But times are changing, and if you are one of the approximately 12,000 Baby Boomers who are retiring each day, chances are you have a 401(k) plan instead of a traditional defined benefit pension plan. You may be worried about cutbacks in Social Security and Medicare benefits, paying for medical and long-term care expenses, and that you haven’t saved enough for retirement.

Our parents’ attitudes were forged by the Great Depression and its aftermath, which brought about Social Security, increased participation in traditional defined benefit pension plans, and the Depression-era savings mentality.  Our retirement attitudes are likely being forged by the Great Recession and its long aftermath. Before the 2008 economic meltdown, many Americans were concerned about retirement security and whether they were saving enough for retirement. In its aftermath, concerns over economic security have replaced concerns over retirement security, with 42 percent of participants in the EBRI survey citing job uncertainty as the most pressing issue facing Americans today. The EBRI survey also found that many workers report that they have little or no savings, with 60 percent of workers reporting that the total value of their household’s savings and investments, excluding their primary home and any defined benefit pension plans, is less than $25,000.

The Great Recession has workers struggling to save for retirement, but it has devastated the retirement outlook for the unemployed and underemployed, who are no longer able to save for retirement, and instead are forced to tap their retirement savings to make ends meet. A recent study from the Transamerica Center for Retirement Studies found that among the unemployed and underemployed, current financial challenges are so great that more than one-third of respondents who have retirement accounts have taken withdrawals from those accounts.

These workers not only face taxes and penalties on the distributions, but the prospect of less money at retirement. This is especially true for older workers who have been especially hard hit by unemployment and underemployment, as once they find employment; they will have less time than younger workers to rebuild their retirement savings.

The latest economic reports indicate a slower recovery from the Great Recession, with continued high levels of unemployment and low income growth. Consumer confidence remains low and cautious. Consumers are foregoing spending and borrowing.

Credit unions can do little to improve the economic outlook, but they can help members improve their retirement outlook. Members are turning to their credit unions to help them weather these tough economic times, and this presents a great opportunity to help members with their retirement savings needs.

Consider the following:

• Offer payroll deduction and automatic savings plans to help your members save for retirement through a Traditional or Roth IRA.
• Offer IRA investments with low or no-minimum deposit requirements.
• Use your newsletter or website to promote retirement plan rollovers and educate members about the high cost of using retirement savings to cover everyday living expenses.
• Create awareness among your members of current tax incentives for saving for retirement, such as the Saver’s Credit and catch-up contributions.

Adequate retirement savings is an important element of your members’ overall financial security and it is in your best interest to help them achieve it. Financially secure members ensure financially secure credit unions. That’s good for your members, your credit union, and our country.

Dennis Zuehlke is Compliance Manager for Ascensus in Middleton, Wisconsin. Mr. Zuehlke provides clients with technical support on tax-advantaged accounts (including individual retirement accounts, health savings accounts, simplified employee pension plans, and Coverdell education savings accounts), and information reporting and tax withholding issues. Mr. Zuehlke is a frequent national speaker on compliance-related issues and retirement savings trends within the financial services industry.

Mr. Zuehlke attended Marquette University and graduated from the University of Wisconsin. Before joining Ascensus, he held a similar position with the Credit Union National Association.

Ascensus delivers a full range of retirement plan services—including plan administration, plan design and maintenance, consulting, web-based tools and content, software solutions, education and training, forms and documents, and technical resources—to approximately 9,000 financial organizations nationwide.  www.ascensus.com