Retirement planning: ‘We’re woefully unprepared’

Recent studies nationwide show many Americans aren’t saving enough for retirement.

Less than half of Idaho employees participate in a retirement savings plan at work, and a similar pattern is seen among workers in Washington, the National Institute on Retirement says.

Now a newly released AARP survey found some daunting specifics among Washington adults. The organization polled residents in advance of a statewide Small Business Retirement Marketplace set to launch in early 2017.

Among AARP findings: 45 percent of statewide respondents had less than $25,000 saved for retirement, and more than a quarter had less than $5,000. Some 55 percent of those polled also said they felt very or somewhat anxious about their financial futures as seniors.

“Just how little they’re saving is shocking,” said Doug Shadel, AARP state director. “People are woefully unprepared.”

AARP completed the phone survey statewide in July among 1,000 adults, ages 18-64 and employed or looking for a job. It weighted data to reflect the age and gender of Washington’s population.

Broken down, the survey shows an expected pattern that younger generations aren’t saving much at all. Nearly half of millennials, ages 18-34, had less than $5,000 set aside in a retirement plan, as did 1 in 6 Generation Xers at ages 35-50, and 1 in 8 baby boomers, ages 51-64.

But 71 percent said they believed they are saving at a current rate that will provided enough money in retirement.

“The baby boomers have saved more, but also not enough,” Shadel said.

The report, “Ready or Not – 2016 Survey of Retirement Readiness Among Washington State Adults,” also showed 63 percent of the respondents had never calculated an estimated retirement savings needed to live comfortably after leaving employment.

That statistic also surprised Shadel. People can access many retirement calculators and tools to get an idea of annual savings needed to reach a retirement fund goal based on age and other factors, he said.

“Our website has all kinds of tools you can use, calculators, and you can get an objective calculation about what you might need,” Shadel said. “There are a number of calculators out there for retirement; it doesn’t have to be ours.”

One of the best ways to build an income nest egg for retirement is to save while working through payroll deductions. Forty-two percent of Washington adults in the survey reported having access to a 401(k) or defined contribution plan, while 12 percent said they have a traditional pension and 10 percent reported they have both.

In early 2017, the state is scheduled to be the first in the nation to launch a market-based approach for small businesses with fewer than 100 employees to offer retirement savings to workers. Operated by the Department of Commerce, the Small Business Retirement Marketplace will have plan referrals and educational resources.

Participation in the marketplace is voluntary, and plans have portability if employees change jobs.

A website for the new marketplace says about 1.5 million Washingtonians have no access to retirement savings at work. Close to 90,000 small businesses statewide don’t offer any retirement savings arrangement, and plans are often described as costly and complicated.

In Spokane, restaurant general manager Marshall Powell says he sees about 30 percent of eligible staff enroll in a company 401(k) plan. With more than 100 employees, it offers the plan among other benefits for workers at a group of area restaurants including The Elk, The Two-Seven, and Geno’s.

“Many of our employees are in their 20s, so saving for retirement isn’t high on their radar,” Powell said. “But we tend to keep employees for a while, so I’ve definitely seen as employees get older and have kids, they start to say, ‘Maybe I should do this now.’ ”

“The biggest thing is retention; it’s just another benefit we can give.”

Adding to the retention piece, research shows people are 15 times more likely to start a retirement plan if an employer offers one as an option, Shadel said.

“It seems to overcome inertia,” Shadel added. “People in our focus groups say plans are too complicated or they don’t have time. A lot of people say they can’t afford it. Many said if their employer had a plan, they would join.”

“Even if you’re 50 or 55 years old, it’s never too late to start saving for retirement, and if your employer can help facilitate that, that’s all the better.”

About 68 percent of AARP respondents said that a business offering a workplace retirement plan was a more desirable employer. And 77 percent of them reported being very or somewhat likely to use a workplace retirement savings tool with options such as payroll deductions if available.

Twenty-four percent of survey respondents don’t have a way to save for retirement at work. That included 29 percent of millennials, 21 percent Gen Xers, and 20 percent of boomers.

However, the AARP study also found people were mostly optimistic about when they could leave employment, with 77 percent of the adults feeling somewhat confident they will be able to retire. Some generations were more confident than others about the age that would occur.

While the age for full Social Security benefits is 67, baby boomers in the survey said they plan on retiring at age 65. Gen Xers pegged their likely retirement age at 64, while millennials were the most optimistic, typically citing retirement by age 62.

Some 44 percent of the adults said they plan to make up a savings shortfall by investing in a company to provide them with returns to fund their retirement. Thirty-four percent of those surveyed said they plan on starting a new business to foot the bill.

Millennials, at 50 percent, were most likely to cite a business launch than other generations, with Gen Xers at 28 percent and boomers at 22 percent. Some respondents even mentioned an inheritance or winning the lottery.

“People seem to be pretty overconfident,” Shadel said. “I was also intrigued by how they think they’d make up retirement savings, and one is to start a business. A quarter said they thought they’d get an inheritance. Nine percent thought they’d win the lottery.”

“There is a little wishful thinking going on there.”

AARP’s survey also found that 26 percent of the adults said retirement seems so far away that they will just get to it later.

When asked reasons for not saving more money for retirement, respondents most often cited immediate day-to-day obstacles, such as concern about current finances (55 percent), paying down debt (51 percent), and not having the extra income to set aside (48 percent).

Thirty-one percent of respondents say they simply spend too much money, and millennials most often reported the burden of education expenses.

AARP presented the new findings to about 100 Spokane members in early October at an event called MoneySmarts. AARP, BECU and the FINRA Investor Education Foundation are providing ongoing information on how to save, invest and protect finances.

In addition to events, the organizations are sharing consumer tips at www.aarp.org/MoneySmarts.