The Growing Trend of Nonretirement

Ah, retirement: The reward for a lifetime of hard work and savings. That’s the American dream, but the reality is 58 percent of American workers now expect to retire after age 65 or not at all, a new Transamerica Center for Retirement Studies’ report found. Many cite reasons related to income and benefits.

“Most plan to do so because they want or need the income (53 percent), yet many also cite reasons of enjoying what they do and wanting to stay involved (34 percent),” Catherine Collinson, president of the center and Transamerica Institute, testified recently before the U.S. Senate Special Committee on Aging.

These workers envision a phased transition into retirement including both work and leisure. Unfortunately, few employers have practices in place to support them. For example, only one in four employers offer pre-retirees the ability to shift from full-time to part-time work.

“In today’s world, individuals are increasingly expected to self-fund a greater portion of their retirement income, but they need help in order to be successful,” Collinson said.

Few Americans Happy with Retirement

The report comes as fewer American retirees say they are “very satisfied” with their retirements, while a growing number of retirees report that they are “not at all satisfied” with their retirements, according to the Employee Benefit Research Institute in Washington, D.C.

The Transamerica report, which offers a 10-step plan to close the gap between employers’ retirement offerings and workers’ needs, found 89 percent of workers value retirement benefits as an important workplace benefit, and 90 percent of workers offered 401(k) or similar plans are saving for retirement.

“As policymakers and industry seek to expand retirement plan coverage among American workers, it should be acknowledged that plan sponsorship rates are relatively high with room to grow and that part-time workers should be a special area of focus and attention,” Collinson said in a statement.

Gap in Benefits for Part-Time Workers 

According to the survey, 74 percent of companies offer a 401(k) or similar employee-funded plan. Despite the high percentage of employers that offer plans, the survey findings reveal a pervasive gap in plan coverage among part-time workers. Only 38 percent of employers that offer a plan extend eligibility to part-time workers.

“By addressing the coverage gap among part-time workers, policymakers can also help improve the retirement outlook of women and lower-income workers who are more likely than other demographic segments to work part-time,” Collinson said.

Another key step for employers to increase retirement security among their workers involves automatic enrollment in 401(k) and similar plans.

“Automatic enrollment, which automatically enrolls employees into the plan with the ability for them to opt out, is widely recognized as one of the most effective ways to increase plan participation rates; however, relatively few 401(k) plan sponsors offer it, despite its appeal to workers,” Collinson said.

Further, automatic escalating is a retirement plan feature that increases a participant’s contributions to the plan, typically by 1 percent a year or when they receive a pay increase. Only 28 percent of plan sponsors offer automatic escalation in contrast to the 67 percent of workers who find the idea appealing.

Another step employers can take is to help educate workers on how “leakage” from retirement accounts can severely inhibit their long-term savings. Among workers who are currently participating in a plan, 23 percent have taken a loan or early withdrawal from their 401(k) or IRA, with top-cited reasons indicating they may lack emergency savings or insurance coverage—or they are paying off consumer debt. While access to funds through loans and hardship withdrawals can encourage plan participation, greater education is needed in simple and clear terms of the risks and negative consequences. Limiting the number of loans allowable by the plan can help, too.

Addressing Workers’ Caregiver Responsibilities

Employers can tackle a hidden threat to retirement security by addressing the caregiver responsibilities of their workers.

Given increases in longevity and the high cost of assisted living and long-term care, many workers will be called upon to be an unpaid family caregiver for an aging parent or loved one at a time in which they are balancing their careers, raising children and saving for their own retirement. The resulting reduction of work hours or time off from the workforce for caregiving can negatively affect their future retirement security.

This offers employers a chance to help employees balance work with caregiving responsibilities. Just 58 percent of employers accommodate caregiving employees by offering flexible work schedules.

Additional Studies on the Growing Trend of Nonretirement 

Other studies and surveys are showing that the American dream of retirement is being delayed:

  • According to Gallup’s 2016 Economy and Personal Finance Poll, workers in 1995 expected to retire at age 60. Two decades later, the expected retirement date is 67.
  • Some workers have given up on the idea of retirement. A 2015 Federal Reserve study found that 27 percent of Americans said they will keep working as long as possible, and 12 percent don’t plan to retire at all.

Reasons for the Delay

There is no one reason why workers delay retirement, but most experts agree that the biggest reason is retirees haven’t saved enough money.

In the past, companies offered pensions, which were a major income source for many retirees. When the trend shifted to 401(k) plans, many Americans failed to contribute enough. According to TransAmerica, most Americans save about $63,000 for retirement, even though they think they’ll need $1 million to live comfortably. Another problem is that many retirees are not sure how to handle their 401(k) assets and are uncomfortable with the ups and downs of the market.

Those who did save diligently may have lost their savings during the recent financial downturn or the tech bust that preceded it. Some baby boomers are hoping to make up the shortfall by relying heavily on Social Security. However, Social Security is only meant to replace about 40% of the average person’s pre-retirement income. Currently, the average Social Security check is only a little more than $16,000 per year, an amount that’s difficult for most people to survive on.

 

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