Retirement Dreams Alive in the US

June 27, 2013

The 2013 Transamerica Retirement Survey* of more than 3,650 workers in the USA, found that retirement confidence is increasing in 2013. 55% of workers are 'somewhat' or 'very confident' about retirement, up from 51% in 2012.

Despite this increase in confidence, the recent years of what is often referred to as the Great Recession have impacted Americans' retirement outlook. The majority of American workers (62%) said they are less confident about retirement since the recession began, and many Baby Boomers (43%) now expect to work longer and retire later.

Catherine Collinson Transamerica"Retirement confidence is on the rise, but people are still not technically ready for retirement," said Catherine Collinson, president, Transamerica Center for Retirement Studies. "Working longer and delaying full retirement is an excellent means of generating income and bridging a retirement savings shortfall, as well as an opportunity to stay active and involved. However, life's unforeseen circumstances, such as health issues or a job loss, can derail the best of intentions. Retirement readiness requires having a retirement strategy as well as a backup plan if retirement happens sooner than expected."

American workers' views of retirement have changed dramatically from the long-held notions of fully retiring at age 65 with many years of leisure to follow. Retirement dreams of traveling, spending time with family and friends, and pursuing hobbies are still alive; however, most workers (57%) now plan on working past age 65 and most also plan to continue working (54%), at least part-time, in retirement. Most plan to continue working for financial reasons or healthcare benefits (66%), yet three in 10 plan to do so for enjoyment.

The Road to Retirement Readiness

"Initially we found that retirement un-readiness is pervasive across demographic segments of the workforce including household income, age range and gender. However, we also discovered a group of American workers who are on the road to retirement readiness, and are a beacon of inspiration for others to follow," said Collinson. "We're calling these Americans our 'Power Planners.'"

Power Planners are ordinary Americans, not limited to the affluent, with the majority reporting an annual household income of less than $100,000. They are adults of all ages, and they include men and women – although it should be noted that they are somewhat more likely to be men than women. According to TCRS' research, Power Planners appear in five different categories based on their retirement savings habits and preparations:

  • 21% of workers are Future Early Retirees – workers who plan to retire sooner than age 65.
  • The ten-percenters are the 22% of workers who save 10% or more of their annual salary through company sponsored 401(k) or similar retirement plans.
  • Strategists make up 12% of workers. Members of this group have a written retirement plan.
  • Those who are identified as the Knowledgeables, 31% of workers, believe they know what they should about retirement investing.
  • 9% of workers fall into the category of Conversationalists. These workers frequently discuss saving, investing and planning for retirement with family and friends.

Power Planners

59%, a surprisingly high percentage, of all workers fall into one or more of the Power Planner categories. However, relatively few fall into two or more (26%) Power Planner categories. Even more surprising: less than 1% fall into all five Power Planner categories.

"Power Planners are everyday people. They are neighbors, friends, colleagues, and people next to us in line at the supermarket – not just people limited to the ranks of the ultra-affluent," said Collinson. "What makes them exceptional is the time they take out of their daily activities to save and plan for retirement."

Retirement confidence among Power Planners is higher than retirement confidence reported for all workers. While 55% of all workers are confident that they can fully retire with a comfortable lifestyle, the figure is significantly higher among Power Planners: 73% of Early Retirees, 81% of Strategists, 72% of ten percenters, 73% of Knowledgeables and 74% of Conversationalists report confidence in retiring comfortably.

Early Retirement

Early retirement

Most of the Power Planners expect to retire at age 65 or sooner. By definition, Future Early Retirees (100%) expect to retire before age 65. The majority of Strategists (54%), ten percenters (54%), even Power Planners plan to work after they retire, sharing similar expectations of all workers (54%).

Such expectations are highest among Conversationalists (58%) and Strategists (56%). However, among those planning to work in retirement, more of the Power Planners plan to do so for enjoyment rather than necessity, a sentiment that is highest among Future Early Retirees (44%) compared to all workers (30%) and Conversationalists (53%) expect to retire at age 65 or sooner. In contrast, only 43% of all workers plan to retire by age 65.

One of the ultimate measures of how the Power Planners compare to all workers is their level of household savings in all retirement accounts. Household retirement savings (median) is highest among ten percenters ($161,000), which is more than triple that of all workers ($53,000). Strategists (38%) and ten percenters (37%) were more than twice as likely as all workers (18%) to report household retirement savings of $250,000 or more.

The Secrets of Retirement Readiness

"Many secrets of retirement readiness may seem like common sense. Yet the survey findings illustrate that the Power Planners taking time to engage in these savings and planning activities can make a meaningful, positive impact on their retirement readiness, especially when comparing them to all workers," said Collinson. "It should also be noted that when analyzing such comparisons, the survey found opportunities for improvement among all workers including the Power Planners."

Some striking comparisons between Power Planners and all workers include:

  • 100% of ten percenters (by definition), 92% of Strategists, and 92% of Conversationalists participate in their employers' 401(k) or similar retirement plan – compared to 78% of all workers.
  • The ten percenters, Strategists, Future Early Retirees, and Conversationalists defer a median of 10% or more of their annual pay to their 401(k) or similar plan – compared to a 7% median among all workers.
  • 86 % of Strategists and 79% of ten percenters are saving for retirement outside of work – compared to 61% of all workers.
  • One of the most important elements to attaining retirement readiness is having a well-defined written strategy about retirement income needs, costs and expenses, and risk factors. 100% of Strategists (by definition) have a written strategy, followed by 40% of Conversationalists. In contrast, only 12% of all workers have a written strategy.

"Of workers having a retirement strategy, the survey found that many are still overlooking key factors that could impact their income and expenses such as investment returns, healthcare costs, inflation, taxes, long-term care, and a backup plan if retirement comes sooner than expected," said Collinson. "This is an opportunity for improvement for all workers including the Power Planners for achieving retirement readiness."

Understanding Retirement Planning

A key element of retirement readiness is the knowledge to make informed decisions. For example, asset allocation principles are an area of knowledge needed for retirement investing. However, only 6% of all workers know "a great deal" about this topic. Among the Power Planners, 23% of Conversationalists and 15% of Strategists reported knowing "a great deal" about asset allocation, which illustrates both higher levels of knowledge and an opportunity for improvement.

"Conversations can be a catalyst for retirement readiness. The Conversationalists, who by definition frequently discuss retirement, show high levels of engagement, knowledge, awareness and, ultimately, retirement readiness," said Collinson. "Moreover, family discussions are essential for setting any expectations about retirement, particularly the need to provide or receive financial support." The survey found that just 9% of all workers frequently discuss saving, investing, and planning for retirement with their family and friends.

Seven Steps Toward Becoming a Power Planner

TCRS' research has found that American workers understand the need to plan for retirement, yet many simply need a good starting point for taking the proper steps to become retirement ready. The following are steps that all American workers can take to become retirement ready:

  • Calculate retirement savings needs. Factor in living expenses, healthcare needs, government benefits and long-term care.
  • Develop a retirement strategy and write it down. Envision future retirement, formulate a goal, and have a backup plan in case retirement comes early due to an unforeseen circumstance.
  • Get educated about retirement investing. Learn about Social Security and government benefits.
  • Participate in employer-sponsored retirement plans, if available. Take full advantage of matching employer contributions, and defer as much as possible.
  • Consider retirement benefits as part of a total compensation. Ask an employer for a plan if they don't offer one.
  • Take advantage of the Saver's Credit. Make catch-up contributions if available.
  • Talk about retirement with family and close friends, and seek the services of a professional advisor if needed.

"The Power Planners are a source of inspiration for all," said Collinson. "Let's get the conversation started and raise awareness that retirement readiness can be within reach by proactively planning and saving."

Further information about the 2013 Transamerica Retirement Survey >>

*Conducted by the Transamerica Center for Retirement Studies® (TCRS), a nonprofit, private foundation dedicated to educating the public on emerging trends surrounding retirement security in the United States. The Center is funded by contributions from Transamerica Life Insurance Company and its affiliates and may receive funds from unaffiliated third-parties.