(Reuters) – Americans who owned stocks in 2013 are feeling better about their retirement prospects than they did just a few years ago. For everyone else, not so much.
The longest-running survey of American retirement sentiment shows confidence rose in 2013, the first increase since sentiment plunged following the Great Recession of 2008-2009.
But the 2014 Retirement Confidence Survey, released on Tuesday by the nonprofit Employee Benefit Research Institute (EBRI), shows that the optimism is due almost entirely to the stock market’s bull run over the past two years.
What’s more, the rising confidence is concentrated among wealthier savers, who have the most significant equity accumulations.
Despite the increased optimism, this year’s survey, EBRI’s 24th, continues to reflect the historic drop in confidence since the economy crashed.
The percentage of workers confident of having sufficient money for retirement rose from record post-crash lows. Eighteen percent were “very” confident, up five percentage points from 2009, though still well below the historic high of 27 percent in 2007. Thirty-seven percent are “somewhat confident.” But 24 percent of workers said they were “not at all confident,” still much higher than the 10 percent no-confidence reading of 2007.
“Overall, people are not convinced yet that we are out of the woods,” said Nevin Adams, co-director of EBRI’s Center for Research on Retirement Income.
Most disturbing, the survey found no progress among a large segment of workers in accumulating retirement savings. Thirty-six percent of all workers say they have less than $1,000 saved for retirement, and 68 percent of workers earning $35,000 or less have saved less than $1,000.
Many families do not have enough money to meet basic needs, let alone save for retirement. That’s reflected in the survey finding that 58 percent of workers (and 44 percent of retirees) report “having a problem with debt.” Twenty-four percent of workers (and 17 percent of retirees) say their debt levels are higher now than five years ago.
That finding echoes recent research on the impact that debt is having on lower-income American household balance sheets by the Household Financial Stability at the Federal Reserve Bank of St. Louis. “We have found that higher levels of debt ratios – regardless of the type of debt – is more common among groups we identify as economically vulnerable and financially fragile, including younger, less-educated and minority families,” says William Emmons, senior economic adviser at the Center for Household Financial Stability.
The wealthiest households told a different story. Thirty-six percent of working households with annual income over $75,000 are “very confident” about retirement, compared with 11 percent of households with income of $35,000 to $74,000, and 7 percent with incomes below $35,000.
Meanwhile, access to a workplace retirement account continues to be a key problem. EBRI found a strong correlation between confidence and participation in a retirement plan, whether a traditional defined-benefit pension, a 401(k) plan or an individual retirement account. Workers with plans were more than twice as likely to be “very confident” about their retirement prospects (24 percent versus 9 percent).
EBRI did not break out confidence levels of those who have traditional pensions, but separate research shows even higher confidence levels among workers who know they will have guaranteed income from a pension. A 2012 retirement confidence survey of state and local workers by the Center for State and Local Government Excellence and the TIAA-CREF Institute found that 73 percent of workers are very or somewhat confident that they will have enough money for a comfortable retirement. That compares with a combined 55 percent of all workers who say they are very or somewhat confident in the EBRI survey.
There were other bright spots in the EBRI survey:
– Confidence among current retirees jumped, with 28 percent saying they are “very confident,” compared with 18 percent last year.
– Households that plan are more confident. An analysis of the EBRI survey data by Principal Financial Group, which sponsors the study with EBRI, shows that 29 percent of workers who have met with a financial adviser to plan for retirement are very confident about retirement, compared with 16 percent of those who have not. Among those who have taken the time to do a calculation of what they need to save for retirement, 25 percent are very confident, compared with 13 percent of those who have not.
“People who are taking action around their own financial future are more confident, says Greg Burrows, senior vice president retirement and investor services at Principal Financial Group. “If they’re using planning tools, or working with an adviser, the confidence numbers are much higher.”
This year’s survey contained one other fascinating finding, one that could cause trouble for the financial services industry. Against a backdrop of proposals in Washington to narrow the tax-deferral features of 401(k)s and IRAs – which the industry is fighting fiercely – EBRI asked Americans how their saving habits would change if the tax advantage was restricted to Roth IRAs only (pay taxes up-front, with future investment returns and principal withdrawn tax-free).
The answer: Sixty-five percent said they would continue to save what they do today. That means one of three things: The tax-deferral features of 401(k)s and IRAs are not that important to most people, many savers do not understand them – or they would rather get tax bills out of the way now, before rates jump.
“I don’t know if people understand the impact of a change like that,” Burrows said. “We certainly view tax incentives and deferrals as critical to the system.”