Confidence in US Retirement Savings Reaches Record Low

By Frank Yu On March 20, 2013 @ 9:29 pm In Economy & Trade | No Comments

A trader reacts at the end of the day at the New York Stock Exchange in Manhattan, March 5, when the Dow surged to a new record high. While major stock indices have rebounded, many of the popular stock holdings of the mid-2000s never did. (Emmanuel Dunand/AFP/Getty Images)

A trader reacts at the end of the day at the New York Stock Exchange in Manhattan, March 5, when the Dow surged to a new record high. While major stock indices have rebounded, many of the popular stock holdings of the mid-2000s never did. (Emmanuel Dunand/AFP/Getty Images)

Despite a surging stock market, Americans are feeling less confident than ever about the size of their retirement accounts, according to a recent survey.

More than 28 percent of potential retirees felt absolutely no confidence in their ability to afford a comfortable retirement, according to the latest annual survey by the Employee Benefit Research Institute (EBRI). That percentage is the lowest on record since the survey began in 1990.

Among potential retirees, only 13 percent of people responded that they felt “very confident” in their ability to retire comfortably. Another 21 percent stated “not too confident,” and the remainder said “somewhat confident.”

The results were impacted by the recent global recession, as the best survey results in recent years were recorded in 2006 and 2007.

While overall the major stock indices on Wall Street have rebounded, many of the popular stock holdings in the mid-2000s—such as shares of financial and insurance firms—never did. In addition, the recent recession has forced many future retirees to dip into their retirement accounts to keep up their loan, credit card, and mortgage payments, as well as assist in paying day-to-day expenses.

“Retirement savings may be taking a back seat to more immediate financial concerns: just 2 percent of workers and 4 percent of retirees identify saving or planning for retirement as the most pressing financial issue facing most Americans today,” according to EBRI. “Both workers and retirees are most likely to identify job uncertainty (30 percent of workers and 27 percent of retirees) and making ends meet (12 percent each).”

Another reason for the low confidence lies in the uncertainty regarding retirement. Many do not know how much money they need to retire, nor do they have a budget or plan for retirement, the study shows.

Fifty-seven percent of workers say that they have less than $25,000 in savings and investments according to EBRI, a nonprofit based in Washington. Many people plan to extend their working days, or allocate a greater amount of their earnings toward retirement accounts.

Longer life expectancies and today’s low-interest rate environment also place added stress onto savings accounts, both for workers as well as companies funding retirement accounts. Current interest rates on new bonds and other fixed-income investments are so low, in some instances that they do not even keep up with ongoing inflation rates

According to the Wall Street Journal, Goodyear Tire & Rubber Co. as of 2012 had a $3.5 billion shortfall in its defined-benefit pension liability to current and retired workers. Goodyear is one of few major companies that still sponsors defined-benefit plans, which largely guarantee an annual payout for retirees with the company bearing risk of funding shortage.

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