Study: confidence in having adequate retirement savings drops

Americans’ confidence in having adequate retirement savings to live comfortably in retirement declined significantly in 2023, according to EBRI’s 33rd annual Retirement Confidence Survey (RCS).

“The confidence both workers and retirees have in their ability to finance their retirements dropped significantly in 2023,” said Craig Copeland, director, wealth benefits research, EBRI. “The last time a decline in confidence of this magnitude occurred was in 2008 during the global financial crisis. This shows that the current economic climate, in particular inflation, is eroding the confidence that Americans had in their retirement preparations going into the pandemic.”

According to the survey, workers’ and retirees’ confidence in having adequate retirement savings to live comfortably throughout retirement significantly dropped from 73% in 2022 for those being very or somewhat confident to 64% among workers, and dropped from 77% to 73% among retirees.

The last time there was a decline in confidence of this magnitude was in 2008 during the global financial crisis, the survey said. Eighteen percent of workers reported feeling very confident, and while retirees’ confidence is slightly higher than that of workers, still only 27% said that they feel very confident.

Adequate retirement savings concerns

Additional survey findings include:

• Workers and retirees expressed high levels of concern about inflation and its impact on their savings and spending. A whopping 84% of workers and 67% of retirees are concerned that the increasing cost of living will make it more difficult for them to save money. Four in 10 workers and 3 in 10 retirees are not confident their money will be able to keep up with inflation in retirement, which is a significant increase compared with the third of workers who felt this way last year, the survey said. This is affecting Americans’ ability to finance their expenses; 73% of workers and 58% of retirees are concerned they will have to make major cuts to their spending due to inflation.
• Workers’ debt levels are increasing and are having a negative impact on their ability to save for retirement.
• While Americans try to prepare for retirement, decreases in retirement accounts have caused them some concern. Half of Americans have tried to calculate how much money they will need to save to have a comfortable retirement. At least 7 in 10 workers and retirees said that they have personally saved money for retirement. However, Americans’ retirement savings have taken a hit this year. Forty percent of workers and 58% of retirees reported that their retirement account balances have decreased over the past 12 months.

Investment options often not understood

In addition, some Americans do not understand retirement plan investment options and many don’t consider their plan provider as a go-to source for retirement planning information and advice, according to the survey.

Many workers feel they understand the investment options their workplace retirement plan offers. Seven in 10 workers are confident they can choose the right investment options for their situation.
However, about 4 in 10 admitted they don't understand Target Date Funds, 3 in 10 workers don’t understand Managed Accounts and half do not understand ESG investment options.

Even with this lack of retirement plan understanding, many workers aren’t using professional sources of information and advice, which can help improve their investment know-how, the survey said.

Retirement plan sources

So where do they get their information from? A large portion of workers (40%) turn to their family or friends when seeking information about retirement planning, while only 2 in 10 turn to their workplace retirement plan provider.

Workers are also confident about their knowledge of how much to withdraw from their retirement savings. However, they have different expectations about the role many income sources will play in retirement compared with today’s retirees. Despite being down from last year, nearly two-thirds of workers are still confident they know how much to withdraw from their savings and investments when they retire.

In addition, workers are more likely to expect income from personal retirement savings, IRAs, work for pay, products that guarantee monthly income, and financial support from family and friends than what retirees currently report being sources of income, according to the survey.

And when they were describing their asset goals, half of retirees reported that they try to maintain their asset levels. Additionally, two-thirds of retirees reported that their financial priority in retirement is income stability over maintaining wealth.

Steps to increase confidence levels

Advisors should be aware of the deep concern shown by respondents about the current economic environment, in particular inflation, said Copeland, as he shared some of the main takeaways of the survey for financial advisors.

American workers are unsure about being able to cover their expenses and still prepare for retirement, Copeland said. They are also concerned about their investments. Reassuring clients about their investment strategy or updating the strategy to address these new realities will be important to help rebuild confidence. Workers expect inflation to persist and the economy to become worse, he added.

To help increase confidence levels in having adequate retirement savings, Copeland said that workers and retirees need strategies that address inflation and a slowing economy in order to help build confidence in having adequate retirement savings. “Advisors need to show their clients that what they are doing will keep them on track in their spending and saving behavior,” he said. “Providing some hedges against inflation and a slowing economy can help Americans feel more comfortable with what they have and how it is invested.”

In many cases, Copeland added, holding course can be the best action and explaining how their investments are there for the long term can also help alleviate concerns. “A check-up could be in order to reassure clients that they understand where they are at and where they are going, particularly with those who have seen their expenses increase significantly,” he said.

The third annual RCS survey was conducted by EBRI and Greenwald Research. The 2023 survey of 2,537 Americans was conducted online from Jan. 5 through Feb. 2, 2023. All respondents were ages 25 or older. The survey included 1,320 workers and 1,217 retirees, and this year included an oversample of roughly 944 completed surveys among caregivers (598 workers and 346 retirees).

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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