The 2003 Towers Perrin Retirement Study: Redefining Retirement in the 21st Century shows that most Americans don´t expect and many don´t even want lives of leisure in their later years. Nor do they expect company and government programs to yield lifetime financial security. And while most appear willing to play a larger role in funding and managing their retirement resources, few are adequately prepared for that responsibility.
The study, which involved more than 2,000 full-time employees of mid size and large U.S. companies, and more than 350 human resource executives and managers at similarly sized businesses, focused on how demographics, economics and social factors are changing employees´ and employers´ views of retirement and retirement programs in general (public and private).
"Many of today´s working Americans no longer view retirement as a distinct stage of life, but instead as an extension of life´s experiences, which will continue to include work," said Steve Kerstein, Towers Perrin principal and managing director of the firm´s HR Services business global retirement consulting practice. "Given these findings, it is time for retirement programs to evolve to meet the needs of today´s businesses and employees."
Although retirement has traditionally involved a period of leisure following a 30- to 40-year career, 78% of employee respondents said they expect to continue working in some capacity well into their retirement years. Sixty-four percent of these respondents expect to work part time, while 57% plan to change occupations. Significantly, 35% of those employees who expect to continue working into their retirement years said they would continue working for financial reasons, more respondents 43% said they would work chiefly to stay involved and active.
Who Will Pick Up the Check?
The majority of the employee respondents do not expect company and government retirement programs to yield lifetime financial security, although employees´ views on who is responsible for providing for their later years are somewhat in flux.
In general, employees expect their employers´ retirement programs to continue, but with reduced benefit levels. Sixty percent anticipate reductions in defined benefit coverage, while 36% expect to have only savings-type retirement plans in the future. In addition, 62% expect their companies to continue to shift more of the cost of retiree medical coverage to them.
The employee respondents also anticipate changes in both Social Security and Medicare. Regarding Social Security, 41% expect the program to continue, but with changes like delaying the start of benefits or reducing benefit amounts. Another 28%, however, expect Social Security to be discontinued. Regarding Medicare, 60% would actually like to see the program replaced with a national health care system, although only 16% expect this to occur. The more likely scenarios, in the eyes of the respondents, include increasing the Medicare eligibility age to match that of Social Security and excluding people from coverage above a certain income level.
Given these views on declining coverage, it´s not surprising that most of the respondents do expect to take more responsibility for financing and managing their retirement resources. Fully half indicated they are likely to increase the amount they save through their organization´s retirement savings vehicles, and 41% plan to save more on their own. At the same time, though, it is clear that many are not yet prepared to meet this challenge of increased personal responsibility. More than half of respondents (52%) have only a rough idea of their financial needs in retirement, and many may actually be overconfident. On average, the employee respondents believe they will need only 62% of their pre-retirement income to meet retirement financial needs, a figure most experts would deem too low.
Biggest Employee Concerns
Asked to identify their biggest concerns in retirement, 52% of the employee respondents cited the cost of medical care and 40% cited declining health. Few have a clear plan for addressing these concerns, but most expected to depend on Medicare and retiree medical coverage from their employer. Another 28% said they worried about outliving their retirement savings.
The Employer Role Is Shifting
Major employers, for their part, are being forced to balance the needs of their employees upon retirement with today´s economic realities. Seventy-six percent of the employer respondents believe they have a continuing obligation to help finance employees´ retirement, but wrestle with tremendous cost pressures in today´s economic environment. For example, 60% of the respondents offering defined benefit pensions reported sharply higher pension expense in recent years. This pressure perhaps explains why 93% of companies said employees would need to take on even more responsibility for their retirement.
"From this research and other studies we have conducted over the last year, we see significant evidence that employees are pragmatic and realistic about retirement issues. They recognize that benefit programs are under increasing pressure as employers struggle to control costs that continue to intensify in today´s competitive global economy. This is especially true among younger employees just entering the workforce who appear to accept more of the responsibility for providing for retirement," said Kerstein.
"For employers offering traditional retirement programs, there appears to be no consensus about how to balance the competing concerns," added Kerstein.
What Employers Are Doing
According to the survey results, 41% of the employer respondents offering defined benefit pensions have converted to hybrid plans; 29% have eliminated defined benefit pensions for new hires, and 27% have reduced or frozen their defined benefit plans. A similar pattern emerges among employer respondents offering retiree medical coverage, with many making incremental changes in their program. Forty-one percent have already reduced retiree medical subsidies for future retirees; 35% said they are likely to do so; and 69% said they have increased their current retirees´ share of medical plan costs via such steps as higher co-payments, deductibles and coinsurance.
"Ultimately, one of the most interesting findings of our study is that employers and employees have more areas of agreement than disagreement on key retirement issues," Kerstein concluded. "Specifically, both groups point to the need for employees to take more responsibility for managing and financing their retirement. They both also agree that employers need to provide well-designed programs that support employees in meeting their financial needs in retirement. The nature and shape of this support remains a key question and a unique opportunity for both the employers and employees. It can well be one of the most critical business issues major employers will face over the next few years as they try to position themselves for success in a time of dramatic demographic, financial and business change.
"Given today´s competitive business environment, there´s never been a more appropriate time to take a fresh look at what companies need to do from a retirement perspective to meet their needs and those of their employees, not only from a cost perspective, but also in terms of their longer-term business strategy and their recruiting and retention needs."
About the Survey
The 2003 Towers Perrin Retirement Study was conducted via the Web during the fall of 2003. The survey sample included more than 2,000 employees working full time at midsize and large U.S. companies, selected at random, and more than 365 human resource executive and benefit directors representing 340 similarly sized companies.