Message That Employees Need to Save More May Be Sinking In

The message that American workers must begin saving, and saving a lot, if they are to have a comfortable retirement may be starting to sink in.

Nearly three-quarters of workers now acknowledge that their savings are inadequate--up from about three in five two years ago--and a growing number are joining employer-sponsored retirement plans and boosting their own savings, according to a recent survey. The amount they are saving is up 22% from levels found in a similar poll last year, the study found.

But the survey also shows disquieting evidence that many families, especially older ones, aren’t going to make it.

People age 45 to 64 had an average of $109,075 in total savings, the survey found--an amount that at age 65 would produce income of $813 a month for the rest of their lives, based on normal life expectancy, actuaries say.

Add in roughly $12,000 a year in Social Security payments and these workers would be looking at annual incomes of about $21,000, or about 12% less than the relatively modest $24,000-a-year retirement incomes they profess to expect.

Economists and other experts have been saying for a decade that retirement savings--and savings in general--are not adequate, but the public has remained largely unmoved by the warnings. Indeed, past polls show savings actually fell in the early ‘90s and remain below the 1992 level despite this year’s upturn.

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The survey results suggest that workers have gone from “the recognition stage to the anxiety stage” about the problem, but it is far from clear that they are ready to make the sacrifices necessary to overcome it.

“I know it’s tough for people to save, yet we have to,” said Kenneth Feltman of the Employers Council on Flexible Compensation, a trade association that helped sponsor the survey, titled “Workplace Pulse.”

“For many people, that means the standard of living that we are used to is going to have to decline in our remaining working years in order for us to have a decent standard of living in retirement.”

If workers fail to act, it will present a daunting policy problem for the government and corporations. The baby-boom generation is so numerous that it would take astronomical tax levels to provide it with Social Security benefits comparable to today’s, but its very numbers will give it political power that will be hard to overcome.

The poll respondents’ willingness to blame inadequate incentives and other government policies, rather than their own spending habits, is not encouraging.

Workers do not think that tax and other government savings incentives are adequate, and they think that federal laws and regulations are more concerned with raising revenue than with encouraging saving, the poll shows.

“People are recognizing that they are not saving enough, but they are not ready to take the full responsibility,” Feltman said. At this point, there is a “blame game” going on, he said.

The poll, released last week, did not include home equity or other real estate as savings, but did factor in the value of traditional “defined benefit” pensions--employer-paid pension plans that provide a lifetime income determined by pay and length of service with the company. The value of those pensions is included in the $109,000.

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Both of those will provide substantial benefits to many workers, and for those lucky enough to have them, especially the pension, a comfortable retirement is likely, despite the low saving rate.

Indeed, it seems likely that the averages shown in this poll and other studies are not where most retirees are going to end up. Instead, the country may see a continuation in retirement of the income gap that has been emerging among active workers for the last decade.

In another survey conducted for a public television program, 27% of the people were not saving anything. Not surprisingly, the portion of non-savers increases as income decreases, but the poll found that 19% of those making between $30,000 and $50,000, and 12% of those earning more than $50,000, save nothing.

“What I find most troubling is that although so many Americans save nothing, and know they should save more, they still hold out the unrealistic hope of a comfortable retirement. That’s just folly,” said Jonathan Pond, author of a number of financial planning books and host of the program.

The bottom line for these Americans, and others who are saving but not enough, is grim. They are going to have to cut spending now--even if it means doing without things they really want--and put that money aside. Otherwise, they will not have the retirement they want--and perhaps no retirement at all.

Already, Feltman added, some workers are discovering they can’t retire when they had planned, and some of those who did retire are finding it necessary for find part-time jobs to make ends meet.

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Although workers show little faith in the government’s ability to help them out through Social Security or other programs, William Bennett of Colonial Life & Accident Insurance Co., another sponsor of the “Workplace Pulse” survey, said they do see great value in employer-sponsored savings plans.

The hitch is that workers don’t have a good idea of what they need to do to reach their goals. “The employer has got to become more of a resource” for information on investment choices and goals, Bennett said.

Feltman said companies are beginning to recognize the need. “I see employers . . . recognizing that they will have frustrated, confused and angry retirees if they don’t help them through education,” he said.

In the meantime, though, most workers still must rely on themselves to make the right choice. Experts say that means:

* Participating to the maximum extent possible in 401(k) or other tax-deferred savings plans.

* Starting these plans at the earliest age possible. As many planners put it, the day you go to work is the day you start saving for retirement.

* Understanding that you have to take some risk. Many workers are so pained by the prospect of losing principal in a stock market downturn that they opt for low-yielding but secure investments. That’s fine for the short term, but over the long haul, inflation can cut into capital worse than a market slump. Over a working life, only stocks have historically delivered the kind of returns you’ll need.