Not surprisingly, a weak economic environment, high unemployment and an uncertain future means more Americans are relying on Social Security for a higher portion of their income in retirement, according to a new study from The Hartford Financial Services Group. However, despite the growing dependence on Social Security, most Americans say they are aware that it will not be enough to fund their retirement.
The Hartford's 2010 Investments & Retirement Study found that 38.8% of survey respondents cited Social Security as their most important source of retirement income, up from 26.7% in 2006, when the study was first conducted. Yet Americans overwhelmingly point to themselves (75.2%) rather than the government (5.3%) as being most responsible for providing their income in retirement. And 85.4% say Social Security alone won't be enough to maintain their standard of living in retirement, up from 81.1% five years ago.
"The lack of confidence about the adequacy of Social Security, combined with a growing pessimism about the future, is contributing to greater uncertainty on the part of many Americans about when or if they may ultimately retire," says Dr. Joseph Coughlin, founding director of the Massachusetts Institute of Technology's AgeLab, which researches the effects of aging.
Coughlin pointed out that 37.2% of Americans now say they are unsure when they will be able to retire and 27.1% say they hope to work as long as their health or the health of their significant other allows.
The Hartford's study showed that nearly one in five people (18%) plan to work as long as possible in their current job. Working longer is one way to help generate a predictable income, says John Diehl, senior vice president of The Hartford's Wealth Management division. But no one can be sure about how long he will remain healthy enough to continue working later in life or what the economic climate might be like in retirement.
"One of the best hedges against financial uncertainty later in life is to accumulate as many discretionary retirement assets as possible and, depending upon our financial circumstances, use those assets to create predictable income to supplement whatever benefits we receive from Social Security, a pension, or both," Diehl said. "The income we generate from discretionary retirement savings will go a long way towards determining our lifestyle in retirement."
Diehl, who heads The Hartford's efforts to educate financial advisors about strategies to meet their clients' financial goals, said that many advisors may be asked to provide strategies to help their clients cope with an increased awareness of health, longevity and inflation risks in retirement.
Crisis of Confidence Deepens
Depending upon individual circumstances, creating a guaranteed income in retirement may help people feel more secure, according to Diehl. He pointed out that The Hartford's study indicated a growing pessimism about the future:
- Keeping up with daily expenses for food, shelter and other basic needs now dominates all other retirement concerns, a growing trend in recent years. In 2010, seven in 10 people (69.3%) cited daily expenses as their No. 1 priority compared to 24.5% in 2007.
- Enjoying life continues to decline in importance, dropping to 13.4% this year compared to an all-time high of 43.2% in 2007.
- Four in five people (79.3%) say they are less than confident that all of their sources of income combined (government pension plan, employer pension plan, personal savings/assets) will be sufficient in retirement. In 2006, 69.2% were less than confident.
Working Longer, Retiring Later
Work continues to grow in importance in the lives of both middle-aged and older Americans as many people see themselves retiring later, incorporating work as an important source of "retirement" income, or both.
- Two in five people (41.2%) say they intend to work longer and delay retirement or work part time during retirement as a way to fund retirement.
- This year, 16.5% saw their retirement lasting more than 20 years, plummeting from 46.5% five years ago.
- The number of people who expect to retire before age 60 declined to 7.5% in 2010 from 13.8% in 2007.