Many U.S. households are not adequately prepared for retirement, according to a new report from the Federal Reserve that found 31 percent of non-retired respondents indicating they have no retirement savings or pension, including 19 percent of those ages 55 to 64.
In addition, nearly half of adults were not actively thinking about financial planning for retirement, with 24 percent saying they had given only little thought to financial planning for their retirement and another 25 percent saying they had done no planning at all. Of those who have given at least some thought to retirement planning and plan to retire at some point, 25 percent said they didn’t know how they will pay their expenses in retirement.
The Great Recession pushed back the planned date of retirement for two-fifths of those ages 45 and over who had not yet retired, and 15 percent of those who had retired since 2008 reported that they retired earlier than planned due to the recession. Among those ages 55 to 64 who had not yet retired, only 18 percent plan to follow the traditional retirement model of working full time until a set date and then stop working altogether, while 24 percent expected to keep working as long as possible, 18 percent expected to retire and then work a part-time job, and 9 percent expected to retire and then become self-employed.
The most commonly reported form of retirement savings is a defined contribution plan, such as a 401(k) or 403(b) plan, which 44 percent of people possess. Over a third (36 percent) of adults reported that they are eligible for Social Security Old-Age benefits, and 18 percent reported that they are covered by a traditional “defined benefit” pension through an employer.
Almost a quarter (23 percent) reported that they are saving for retirement using an individual retirement account, or IRA, and the same proportion are saving for retirement outside of a formal retirement account (23 percent). Eleven percent of respondents indicated that they are saving for retirement utilizing real estate or land investments, which, for some, presumably includes tapping the equity of the home they own.
In the new Report on the Economic Well-Being of U.S. Households, the Federal Reserve Board provided a snapshot of the self-perceived financial and economic well-being of U.S. households and the issues they face, based on responses to the Board’s 2013 Survey of Household Economics and Decisionmaking. In addition to retirement, the report provides insight into numerous topics of current relevance to household finances, including housing and living arrangements; credit access and behavior; education and student loan debt; savings; and health expenses.
Overall, the survey found that as of September 2013 many households were faring well, but that sizable fractions of the population were at the same time displaying signs of financial stress. Over 60 percent of respondents reported that their families were either “doing okay” or “living comfortably” financially, although one-fourth said that they were “just getting by” financially and another 13 percent said they were struggling to do so. The effects of the recession also continued to be felt by many households, with 34 percent reporting that they were somewhat worse off or much worse off financially than they had been five years earlier in 2008 and 34 percent reporting that they were about the same.
The outlook for the housing market among homeowners appeared generally positive, as many homeowners expected house prices in their neighborhoods to increase over the 12 months following the survey, with 26 percent expecting an increase in values of 5 percent or less and 14 percent expecting an increase in values of greater than 5 percent. Less than 10 percent of homeowners expected house prices in their neighborhoods to decline over the 12 months following the survey. Many renters seemed to express an implied interest in homeownership, as the most common reasons cited by renters for renting rather than owning a home were an inability to afford the necessary down payment (45 percent) and an inability to qualify for a mortgage (29 percent). Ten percent of renters reported that they were currently looking to buy a home.
The availability of credit was still perceived to be relatively low by some respondents in September 2013. While 31 percent of survey respondents had applied for some type of credit in the prior 12 months, one-third of those who applied for credit were turned down or given less credit than they applied for. In addition, 19 percent of the survey respondents said they put off applying for some type of credit because they thought they would be turned down.
Just over half of respondents were confident in their ability to obtain a mortgage, were they to apply. Experience and expectations with credit appear to vary by race and ethnicity. However, this effect is partially explained by other factors correlated with race/ethnicity and credit, such as education levels.
As of September 2013, education debt of some kind was held by 24 percent of the population, with 16 percent having acquired debt for their own education, 7 percent for their spouse/partner's education, and 6 percent for their child’s education. Of those with loans of each type, the average amount of debt for respondents' own education was $25,750, for their spouse/partner's education $24,593, and for their children's education $14,923. Of those who reported having debt for their own or a family member's education, the average total of all education debt was $27,840, with a median of $15,000. Some households struggle to service this debt, with 18 percent indicating that they were behind on payments in some way for their education debt, including 9 percent with loans in collections.
Among those with debt for their own education, those who failed to complete the program they borrowed money for were far more likely to report having to cut back on spending to make their student loan payments and that the costs of the education outweighed any financial benefits they received from the education. The amount of debt acquired, and the self-perceived value of the education, also varied by the type of institution attended.
The survey was conducted on behalf of the Board by GfK, an online consumer research firm. Data collection began Sept. 17, 2013, and concluded on Oct. 4, 2013. Just over 4,100 respondents completed the survey. A report on the survey findings is available here, and a supplemental appendix can be found here.
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