Workers Confident But Unprepared For Retirement In 2014

The Bread Line Sculpture by George Segal (Photo credit: krossbow)

Workers are more confident about retirement preparedness but they're not any better prepared, according to the 2014 Retirement Confidence Survey released today by the Employee Benefits Research Institute. 'This increased level of confidence does not appear to be founded on improved retirement preparations,' the report found. 'In the aggregate, worker savings remain low, and only a minority appear to be taking basic steps to prepare for retirement.'

It's a case of the haves and the have nots. The increase in retirement confidence over the last year-18% percent of workers are now very confident, up from 13% in 2013-occurred primarily among those with a retirement plan (presumably they saw large account balance increases because of the stock market run-up) compared to unchanged confidence readings for those without a plan. A third of workers with a retirement plan have more than $100,000 saved while only 3% of those without a retirement plan have more than $100,000 saved. Nearly three-quarters of those without a retirement plan have saved less than $1,000.

What can employees learn from the survey results to improve their chances of a comfortable retirement? We chatted with Greg Burrows, senior vice president of retirement and investor services at the Principal Financial Group Principal Financial Group in Des Moines, Iowa, a leading 401(k) provider and a survey underwriter. Here are five keys to a money-worries-free retirement.

Stuff a 401(k) and/or an IRA. Pick a plan, any plan is better than no plan at all to save for retirement. 'Do it early, consistently, and on a long-term basis,' says Burrows. The survey looked at workers with either an employer-sponsored retirement plan (a 401(k), 403(b) or 457 government plan) and/or an Individual Retirement Account. Nearly half of workers without a plan were not at all confident about their financial security in retirement, compared with only about 1 in 10 with a plan.

If you have access to a workplace plan, there's a contribution hierarchy of where you should stash retirement savings, starting with putting enough in the workplace plan to grab an employer match if offered. Consider a Roth IRA instead of a traditional IRA, especially if you're younger. And don't forget the magic of compounding. An individual worker who starts saving $3,000 a year at age 25 every year for 40 years will have five times the amount of savings compared to a colleague who waits until 45 to start, Burrows says.

Focus on budgeting. No matter how many different savings vehicles are offered, you have to have a handle on spending in order to save. EBRI found that 58% of workers were having problems with debt. Burrows emphasizes going back to the basics of keeping an expense log to track where you're spending and making smart decisions about how you can modify your expenses to create the capacity for savings if you haven't started-or more savings if you're already saving. 'Savings are a positive outcome of a fairly disciplined process,' he says.

Try out a planning calculator. EBRI found that only 44% of workers are using retirement savings calculators to assess how much they should be saving. Burrows says that Principal has found that of their clients who use retirement calculators, 40% take action and they save at approximately 40% higher rates than those who don't use the planning tools.

EBRI has its ballpark estimator here and the Principal has its Milestones calculator (whether or not you're a Principal client) here. Janet Novack has a list of more calculators that can raise your odds of retiring well here.

Don't count on delaying retirement. You're not invincible. EBRI found that 49% of workers retired earlier than expected, with 61% saying the cause was health-related.

Don't count on working in retirement. EBRI found that 65% of workers expect to work in retirement, but only 27% of retirees say they actually work in retirement. That means those who think working in retirement is part of their overall plan should reconsider. 'That's a false retirement for a lot of people,' Burrows says, 'so it's best to prepare to not work, and if you do have that capability, you'll just find yourself in a better position.'

See also:The 25 Best Places To Retire in 2014

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