Today’s retirees are happier than workers, despite some having an unmanageable amount of debt and a high level of financial stress, according to the 2019 Wells Fargo Retirement Study.
“Our survey clearly shows stark differences between current retirees and younger generations and how they will fund retirement,” said Fredrik Axsater, head of the Institutional Client Group for Wells Fargo Asset Management. “For those still in the workforce, saving for a viable retirement lies almost entirely in their own hands, which requires a vastly different strategy and approach. As an industry, we need to ensure that more workers take the necessary actions today to adequately fund their retirement tomorrow.”
Conducted online by The Harris Poll on behalf of Wells Fargo, the study surveyed 2,708 workers age 18 to 75; and 1,004 retirees.
The study found several key characteristics that influence today’s retiree, who— in the survey— had an average age of 70.
More than eight in 10 of retirees fund their retirement primarily with Social Security or a pension; just five percent say personal savings, such as an IRA or a 401(k), is their main source of funding.
For younger generations the quality of their retirement will depend almost entirely on how much they save through vehicles such as a 401(k) or IRA.
Approximately 45 percent of Millennial workers say the top source of funding for their future retirement will come from an IRA or a 401(k), compared to just 25 percent who say they expect to rely on Social Security or a pension for their retirement income.
“I think it’s fair to say that there’s a mismatch between savings that people have, and also what they expect to need in order to feel safe,” Axsater said. “Generation X, as an example, on average have $66,000 in savings and they say that they will need on average $750,000 in order to retire comfortably. So, this study is really a call to action— for us to build a stronger foundation.
“A call to action is needed to get more and more people into what we call the planning mindset— the mindset where people have a combination of other long-term financial goals. It’s time for action.”
Despite recognition that saving and paying for retirement now rests with the individual, younger generations hold mixed views about whether they are saving enough, the study revealed.
Financial challenges negatively impact the ability of nearly half of workers to save adequately, according to the survey.
Overall, just over half (55 percent) of workers say they are saving enough for retirement. By generation, 61 percent of baby boomers say they are saving enough, followed by Millennials (55 percent), Generation X (51 percent) and Generation Z (48 percent).
Debt plays a crucial role in workers’ ability to save, as 31 percent of Millennials say they have an “unmanageable amount of debt,” followed by Generation X (26 percent), Generation Z (25 percent) and baby boomers (14 percent).
Among all workers, nearly half (46 percent) say they are putting off saving for retirement due to current financial challenges, and 67 percent of workers paying student loans say the burden of student loans is getting in the way of saving for retirement.
As a result, many workers appear to be falling well short of what they will need to fund their retirement.
Twenty-nine percent have personally saved less than $25,000; 13 percent have saved between $25,000 and $100,000; and 11 percent have saved between $100,000 and $250,000 – which means that more than half (54 percent) of workers have saved less than $250,000 for retirement, according to the survey.
Thirty-two percent of workers can’t estimate what they have saved for retirement and only 15 percent of workers have saved $250,000 or more.
Just over six in 10 workers say they would have no idea what they would do if Social Security were not available “when they need it,” a concern that jumps to 71 percent for current retirees.
Across generations, 91 percent of workers and 94 percent of retirees say they would feel “betrayed” if the money they paid into Social Security were not available when they retire.
The survey found that workers have much more faith in their personal savings than in Social Security.
Axsater says it’s important to have a planning mindset, which includes setting and achieving as a goal or set of goals during the past six months to support their financial life; working diligently toward a long-term goal; feeling better about having finances planned out over the next one to two years; and preferring to save for retirement now to ensure they have a better life in retirement.
“If more workers adopt these behaviors, more retirees should be better prepared for the rapidly changing reality of retirement,” Axsater said.