News about retirement since the financial crisis has been decidedly negative. Workers aren’t saving enough. Pensions are underfunded. Long-term investment strategies to make up the difference are far from obvious.
But new research suggests that the state of retirement in America isn’t as disastrous as thought.
Towers Watson, a global professional services company that consults on financial management, has two new studies out that provide signs of improvement.
First, the financial health of large U.S. corporate pension plans improved sharply in 2013.
The analysis found that the 100 largest public company pensions improved their funding levels by 13 percentage points, from 78 percent at the end of 2012 to 91 percent at the end of 2013. That’s the best funding level since the end of 2007, when the average stood at 103 percent, according to the report.
Reasons for the improvement include rising interest rates, which lowered liabilities, and investment returns that averaged 10.8 percent in 2013.
“Plan sponsors made great strides to shore up the financial condition of their pension plans last year,” Dave Suchsland, a senior consultant at Towers Watson, said in a statement. “The rising stock market, combined with higher interest rates for the first time in five years, pushed funding levels significantly higher. This is good news for employers, as stronger pension fund balance sheets will reduce required cash contributions in the near term while lower pension costs will improve corporate earnings.”
Corporate pensions are in a better financial condition than public plans. Those retirement systems were just 73 percent funded overall at the end of 2012, according to the latest data available from the Boston College Center for Retirement Research.
A second positive signal is that more American workers are satisfied with their finances and confident about retirement.
Nearly half of respondents (46 percent) were “satisfied” with their current finances, up from 26 percent in 2009, according to a separate Towers Watson survey. Employees’ confidence in their ability to retire also continued to climb: 23 percent were “very confident” of having enough income for the first 15 years of retirement.
Of course, those results are hardly a sign that the retirement problem is solved.
About 58 percent of workers remain worried about their financial future and only 8 percent are “very confident” of having adequate income 25 years into retirement, according to the same survey.
“Employees might be on firmer financial footing now than they were five years ago, but many remain nervous about their finances and prospects for a secure retirement,” Shane Bartling, a senior consultant at Towers Watson, said in a statement. “This is especially true for older workers who are likely better positioned to assess their retirement income than workers overall. The financial crisis hit workers age 50 and above particularly hard, with the stock market fall creating a huge dent in their retirement savings and their confidence levels.”
The solution for many is to work longer.
Nearly four in 10 plan on working longer, according to the survey, an increase of nine percentage points since 2009. Most employees expect to delay retirement by three or more years, and 44 percent plan on a delay of five years or more. One in three employees either does not expect to retire until after 70 or doesn’t plan to retire at all, according to the survey.