The State of the (Retirement) Union is Weak

Americans continue to be stressed about their retirements, according to the 2012 Retirement Confidence Survey (RCS), a major annual survey of employee expectations and retiree realities. Since the 2007-08 recession, retirement confidence has hovered for several years at or near the lowest levels recorded by the RCS since it began in 1990. Last year was no different.

[See 10 Steps to Fine-Tune Your Retirement Plan.]

For people still working, slightly more than half were either very confident (14 percent) or somewhat confident (38 percent) they would be able to retire comfortably. For people either retired or at least 65 years old, the picture was a bit better: 21 percent said they were very confident of a comfortable retirement and 42 percent said they were somewhat comfortable.

When the RCS asked them about their confidence in paying for basic necessities in retirement--a lower financial threshold than being comfortable--71 percent of workers (26 percent were very confident and 45 percent were somewhat confident) and 80 percent of retirees (32 percent were very confident and 48 percent were somewhat confident) said they were.

The RCS is co-sponsored by two Washington organizations: the Employee Benefit Research Institute (EBRI), a nonprofit research organization, and Matthew Greenwald & Associates, a market research firm. It has become the retirement benefits' version of the annual State of the Union message. And for most of those years, the message has not been very uplifting.

Americans save too little money and do not do a good job of planning for retirement. These are the averages. Broken down by income levels, more affluent workers do a better job, no doubt in large measure because they can afford to. Older workers also do a better job, for the obvious reason that they are beginning to see the retirement beast at the end of their employment tunnels.

[See How Spending Priorities Change as We Age.]

< p>Among the many charts and tables in the RCS, one topic has always held special interest. Each year, the RCS asks workers about what they expect to find in retirement. It then asks retirees a comparable set of questions about what they've actually found retirement to be like. There is a big gap between the two sets of answers. The reality of retirement is a lot more challenging than pre-retirees expect.

Taking a look at the differences between expectation and reality creates a compelling list of the things workers could be learning from retirees who have already walked a mile or two in their retirement shoes. Yet, the next year's RCS shows the same comparative gaps. And the next RCS after that. And so on. The RCS, to state the obvious, is probably not required reading in the lunch rooms of America's workplaces. Too bad.

[See Health: The Biggest Determinant of Your Retirement Security.]

Here's one table from the 2012 RCS that looks at the sources of income workers expect to rely on in retirement, and the actual sources of income that retirees receive. The total percentages of people citing each type of income include those who feel it will be or is a major source of income and those who expect or think it's a minor source.

There are several big disconnects here:

Only 31 percent of workers think they'll need to rely on Social Security as a major source of retirement income; 69 percent of retirees know better.

Nearly 80 percent of workers think they'll continue to get money by working after they reach retirement age; only 27 percent of retirees actually do.

Workers by substantial margins also expect to rely much more heavily on employer retirement plans, IRAs, and their personal savings and investments than do actual retirees.

Some of these differences may be due to the rising popularity of 401(k)s in recent years, the decline of traditional pensions, and growing concerns that Social Security will not be able to maintain its current income supports for younger workers. But most of the difference is likely caused by the reality that retirement costs a lot more than current workers think, and their private funds are not going to sustain them as much and for as long as they hope.

Strangely, the set of numbers where workers and retirees agree most closely is about the role of traditional pensions. Here, however, the RCS sponsors felt obligated to note that while 56 percent of workers said they expected to get pension income in retirement, only 33 percent said they currently were in line for such a benefit. Exactly where the other 23 percent were going to find what has become a nearly extinct new employee benefit was not disclosed.