The U.S. Federal Reserve’s annual report on the Economic Well-being of U.S. Households has been released for 2017. There are many areas covered in this report, including retirement readiness. Within the retirement section, the report highlights retirement savings, financial literacy, and retirement timing. The results highlight major differences among retirees and those hoping to retire in the future.
Most notable for me was that 56% of current retirees are drawing income from a defined benefit pension, while only 26% of our current workforce is participating in a DB plan. It is certainly a lot easier to retire when one has both Social Security (87% of retirees are currently receiving a monthly SS check) and a pension that pays a monthly benefit, too.
The successful movement from DB to DC-type plans depends in large part to how capable the individual participant is from a financial literacy standpoint. According to this report, 60% of non-retirees have little to no comfort managing their investments. Furthermore, more than 25% of working households have nothing saved for retirement.
Finally, a significant percentage of our workforce is still retiring before age 65, but is it because of financial freedom? Hardly. The report highlights the fact that 75% of those that retired in 2017 were younger than 64 years old, but most of these individuals claimed that they retired because of poor health or weak job prospects. Those thinking that working later in life as a way to supplement their retirement income may want to reconsider.
Much more needs to be done to help our future retirees.