Worker Confidence Sinks:
How Secure Is Your Retirement?

Photo by Damon Winter/The New York Times/Redux

Concerns over a faltering economy, along with rising health care costs, are causing Americans to doubt that they can retire comfortably.

A survey released last month by the Employee Benefit Research Institute (EBRI) says that the percentage of workers who are very confident about having enough money to fund a comfortable retirement fell sharply to 18 percent in January from 27 percent in 2007—the biggest one-year drop since EBRI began tracking worker attitudes toward retirement savings 18 years ago.

The percentage of retirees who are very confident about their ability to have a financially secure retirement also dropped—to 29 percent from 41 percent last year, the survey found.

At the same time, the number of workers who aren’t confident they can save enough to retire comfortably increased from 29 percent to 37 percent in 2007, and among retirees, the percentage rose from 21 to 34.

Consumer debt and the economic downturn in large part caused 14 percent of workers to say that in the last year they’ve postponed retirement, according to the survey of more than 1,300 people.

“This is a wake-up call,” Willliam Frey, a senior fellow at the Brookings Institution, a Washington-based think tank, says of the survey results. “People need to think more carefully about how they’re planning for health care coverage and retirement income when they get to that age.

“Younger workers now have a healthy skepticism; we encourage them to be more serious about their future,” he says. “It’s more unfortunate for people closer to retirement because they’ve seen a drop in their investment portfolio and in the value of their home, so for them it’s much more real.” [For an analysis of what financial experts suggest you can do, see Don’t Panic: Protecting Your Nest Egg in a Volatile Market.]

A separate survey released in March also illustrated Americans’ fears about retirement security. Half of the 3,000 people interviewed said they don’t think it’s possible for a middle-income family to save enough to retire, according to the survey by COUNTRY Financial in Bloomington, Ill.  

Women are feeling especially pessimistic. Only 29 percent of women, compared with 44 percent of men, said it was possible to achieve a secure retirement. That may not be surprising, however, since women face greater challenges in retirement. They often earn less than men in the same jobs, so their Social Security benefits, pensions and 401(k) plans—all of which are tied to wages—are lower and won’t stretch as far in retirement.

Some women interrupted their careers and gave up earnings and retirement contributions for years to care for children. Others outlived their husbands and lost their main source of income as well as their lifelong partner.

And some women endured a fate similar to Joan Miller, 64. She stayed at home in Champaign, Ill., and raised her two daughters for 16 years. But when she divorced in 2001, after 36 years of marriage, she knew she was in financial trouble.

Miller had a job with Bed, Bath & Beyond, stocking shelves and working as a cashier. But she didn’t start contributing to her savings plan until last year, 16 years after she was hired.

“I couldn’t afford to save before then,” says Miller, a diabetic who spends about $150 a month on medication. “My salary and bills are nearly equal.”

Still, she adds wistfully, “If I had known I’d be on my own at this age, I would’ve started saving money sooner. But who knew?”

Like Miller, those polled in the EBRI survey said that rising health care costs are a key obstacle to retirement security. Nearly half of the workers interviewed, 45 percent, said they aren’t confident they can cover medical expenses in their later years, up from 34 percent in 2007. And 56 percent said they’re worried about long-term care costs, up from 47 percent last year.

Fifty-four percent left the workforce earlier than planned because of, in part, health problems or disabilities. Almost half of retirees said they have spent more on health care than expected. More than half of retirees, 54 percent, said they are more concerned about their financial future now than they were immediately after they retired.

The survey did find some good news. More workers seem to be planning for retirement. Nearly three-quarters of workers, 72 percent, said they have saved for retirement, compared with 66 percent last year.

But most people’s savings are modest. According to the EBRI survey, 49 percent of workers reported less than $50,000 in savings and investments, excluding home values and pension plans. What’s worse, 22 percent of workers and 28 percent of retirees said they have no savings at all.

That may be in part because people assume that if they’re living longer they should be working longer. But Laurence Kotlikoff, a professor of economics at Boston University, warns against that line of reasoning. “You may not be healthy enough to work longer,” he says. “People should err on the side of caution.”