The average American is vastly underestimating what they will need in retirement, but they don’t know it, according to a new survey.
Natixis Investment Managers surveyed 1,000 American workers with access to a company-sponsored defined contribution plan. The research spanned three generations: Baby Boomers, Gen X, and millennials. The survey found that two-thirds of those surveyed think they’ve saved enough to retire and live comfortably, at least if they remain frugal. And three-quarters feel sure they’ll be financially secure.
But they’re operating on flawed assumptions, Natixis said, ranging from when they can retire to how far their money will actually go.
“The ability to live comfortably in retirement is a basic premise of the American Dream,” Ed Farrington, executive vice president of retirement strategies at Natixis, said in a statement. “Right now, it’s just a pipe dream for many hard-working Americans.”
The average saver puts 6.8% of their annual income into their workplace retirement plan, according to Natixis. Boomers lead the pack with 8.5%, followed by those in Gen X, who save an average of 7.4% of their annual income. Millennials come in last, saving just 5.7%.
Two-thirds still factor in income from Social Security, in addition to what they’re saving for retirement personally, the survey found. But 42% don’t even believe those benefits will be available to them when the time comes. What’s worse, 27% of American workers have already borrowed against their workplace retirement plan, and 27% have accepted penalties to pull money out.
The biggest reason cited for not saving more is simply regular daily living expenses. After that came credit-card debt, housing costs, and costs associated with health care.
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Just one in four millennials are focused on retirement planning at all, the survey found. They’re busy trying to buy a home, start a family, or pay down student loan debt. Twenty-eight percent of millennials surveyed said their student loans payments prevent them from saving more, and 30% said that’s why they opt out of retirement saving plans entirely.
For Gen X, the average 45-year-old wants to retire at age 64, but has saved just $166,328. That means they’ll need to save at least $42,000 more annually to retire by then with just under $1 million. Some of them also feel the burden of student debt: 15% of Gen X respondents cited such loans as to why they don’t save more for retirement.
Boomers are full of regret: 47% regret not starting saving sooner, and 35% wish they’d stashed more money away. The average 64-year-old has saved 30% of the $1 million they say they’ll need to maintain a comfortable lifestyle once they stop working. They’ve already pushed out retirement, to age 69 on average—but even so must save over $142,000 annually to get there.
More than half those surveyed are looking to the government for help: 53% said it was the government’s responsibility to provide universal access to retirement savings plans, and 54% would support requiring people to save for retirement. And 75% said it should be mandatory for employers to provide retirement savings plans.
Corporations can do something about it. If employers contributed more to match what employees squirrel away, 57% of respondents in the Natixis survey said they’d save more. Some 79% of those surveyed work for employers who match contributions, which they cited as the primary reason for participating in the plan at all. Just one-third contribute the maximum.
Those who opted out said they did so because their employer doesn’t offer a match, or doesn’t match enough, according to the survey.
There’s also a question of education. The survey showed that just 14% of participants even know how much they can contribute to their 401(k) before they max it out, and 64% of participants 50 and older are not capitalizing on catch-up contributions above the contribution limit.
Information does make a difference. Natixis found that, while less than half of those surveyed get professional financial advice about their money for retirement, those who did get advice contribute more to their plans—7.2% of their annual salary, versus 6.5% for those who don’t get advice.
