In the more than five years since the financial crisis, equity markets have climbed to historic highs and the housing market has rebounded. Nevertheless, persistent unemployment and stagnant wages have sapped economic momentum and undermined workers’ financial security and retirement confidence.

Throughout this period Towers Watson has been tracking workers’ attitudes toward their jobs and benefits to better understand their financial concerns and plans for the future. While employees seem more satisfied with their finances now than they were in 2008 and 2009, retirement confidence remains below precrisis levels, and many are worried about the affordability of health care. Significant numbers of workers have had to cut back on spending and plan to delay retirement, many until age 70 or later.

About the survey

Towers Watson’s 2013/2014 Global Benefit Attitudes Survey is a nationally representative survey fielded in 12 countries.1 The U.S. survey includes 5,070 respondents employed by nongovernment organizations with 1,000 or more employees. It builds on several previous Towers Watson surveys to track evolving employee attitudes.

This article reflects responses from a subset of 4,248 retirement plan participants working full-time. All respondents are provided a defined benefit (DB) and/or defined contribution (DC) retirement plan by their current employer. DB plan participants are those who currently participate in an active DB plan. Respondents with only a DC plan include both those who contribute to the plan and those who decline to participate. All results are weighted by age, gender and salary to the national average of similar workers.2

This is the first in a series of three articles based on the survey. The second article will examine the value employees assign to various benefits and features, and the third article will highlight how employer-sponsored benefits affect attraction and retention.

Employees more satisfied but still worried about the future

Despite improving corporate financial performance, more than three-quarters of employees (76%) say their employer recently enacted significant changes that could compromise their near-term or long-term financial security (Figure 1). These changes commonly affect retirement benefits, pay raises and employees’ shares of health care costs, and are putting pressure on workers’ household budgets.

Figure 1. Has your employer done any of the following in the last two years?
Towers Watson Insider - Figure 1. Has your employer done any of the following in the last two years?
Note: Based on full-time employees enrolled in a retirement plan.

Source: 2013/2014 Global Benefit Attitudes Survey – U.S.

As the economy has recovered, employees’ satisfaction with their overall finances has rebounded as well, rising from 26% in 2009 to 46% in 2013 (Figure 2). While the gains accrue across the board, retirement plan type and health status strongly affect satisfaction levels. Participants in DB plans are 35% more likely to be satisfied with their finances than those with only a DC plan, and healthy workers are twice as likely to be content as those in poor health.

Figure 2. Thinking of all aspects of my finances, I am satisfied with my situation today
Towers Watson Insider - Figure 2. Thinking of all aspects of my finances, I am satisfied with my situation today
Note: Based on full-time employees enrolled in a retirement plan. Percentages indicate responses of “agree” or “strongly agree.”

Source: 2013/2014 Global Benefit Attitudes Survey – U.S.

Roughly half of employees remain unsatisfied with their finances and almost three in five are worried about their financial future (Figure 3). Workers who are less healthy and those who lack DB plans are both less satisfied with their current finances and more worried about the future. This might reflect both adverse changes in the workplace and broader economic uncertainties.

Figure 3. I often worry about my current (or future) financial state
Towers Watson Insider - Figure 3. I often worry about my current (or future) financial state
Note: Based on full-time employees enrolled in a retirement plan. Percentages indicate responses of “agree” or “strongly agree.”

Source: 2013/2014 Global Benefit Attitudes Survey – U.S.

Retirement confidence still trails precrisis levels

Retirement confidence climbed between 2009 and 2013, and nearly one-quarter of employees are now “very confident” of having enough income for the first 15 years of retirement (Figure 4). This reflects improving financial conditions over the past four years as employees have rebuilt their savings. When asked to assess their prospects 25 years after retiring, however, only 8% remain confident of a financially comfortable retirement. The impact of the shift from DB to DC plans might be feeding through to financial worries about the future as employees prepare to bear more risk. Given increasing longevity, this gives cause for concern.

Figure 4. Confidence by retirement plan type, 15 and 25 years into retirement
Towers Watson Insider - Figure 4. Confidence by retirement plan type, 15 and 25 years into retirement
Note: Based on full-time employees enrolled in a retirement plan. Percentages indicate responses of “very confident.”

Source: 2013/2014 Global Benefit Attitudes Survey – U.S.

Just as DB plan participants are more confident of their financial futures, they are also considerably more secure about their retirement income adequacy than DC-only employees in both the short and long term.

Employees nearing the end of their careers are less optimistic about retirement and might have more realistic expectations than workers overall. The financial crisis hit this group particularly hard, with the stock market fall putting a huge dent in their retirement savings. Since the start of the financial crisis, confidence levels for workers age 50 and older have declined by 10 percentage points (Figure 5). In 2007, 34% were very confident of their ability to afford the first 15 years of retirement, compared with only 24% in 2013.

Figure 5. Older workers’ (age 50+) confidence in having enough resources 15 years into retirement
Towers Watson Insider - Figure 5. Older workers’ (age 50+) confidence in having enough resources 15 years into retirement
Note: Based on full-time employees enrolled in a retirement plan. Numbers for 2007 based on T. Hill (2008), Watson Wyatt’s 2007 U.S. Surveys of Older Employees’ and Retirees’ Attitudes Toward Lump-Sum and Annuity Distributions From Retirement Plans.

Source: 2013/2014 Global Benefit Attitudes Survey – U.S.

Pessimistic outlook on public programs and medical costs has workers worried

Economic progress seems to have fallen off course, and only 34% of employees expect to be better off in retirement than their parents. In addition to curtailments to workers’ private retirement plans, the public safety nets their parents and grandparents relied on are looking more precarious as well.

Eighty-three percent of employees believe Social Security will be less valuable in the future, and 88% have similar fears about Medicare. The pessimistic outlook for Social Security and Medicare likely reflects heightened concerns about government gridlock and the national debt. Employees know that weaker public finances and less generous employer benefits will impose a far greater retirement burden on individuals.

Workers also worry about both current and long-term health care costs. Only two in five employees believe they can afford any medical expenses that might arise in the next 12 months. These concerns are more pronounced for midcareer and older employees and those in poor health. Additionally, 70% of employees fear higher out-of-pocket medical costs lie ahead.

Escalating health care costs are already claiming larger shares of paychecks, and confidence in the affordability of health care further erodes when workers look ahead to retirement. Roughly half of all employees expect to be able to afford the health care they will need after retiring (Figure 6). Again, older workers, those in poor health and under-savers are particularly worried, and 80% of those who characterize themselves as “highly stressed” are apprehensive about future medical costs.

Although DB plan participants look forward to a more financially secure retirement, they are not immune from these worries (Figure 6). While this group is moderately more confident of their ability to afford their medical expenses in retirement, roughly half of DB plan participants (45%) are afraid their retirement plan might be cut and about one-third (36%) fear having to bear more investment risk in the future (not shown in Figure 6). And for DB plan participants who have recently undergone a cut to their retirement program, 70% fear more curtailments are on the horizon. 

Figure 6. I am concerned I will not be able to afford my medical expenses when I retire
Towers Watson Insider - Figure 5. Older workers’ (age 50+) confidence in having enough resources 15 years into retirement
Note: Based on full-time employees enrolled in a retirement plan. Percentages indicate responses of “agree” or “strongly agree.”

Source: 2013/2014 Global Benefit Attitudes Survey – U.S.

Employees continue to spend less and pay down debt

In the aftermath of the financial crisis, many workers made it a priority to pay off debt, save for retirement and otherwise exercise more control over their household budgets. Reducing debt has become particularly important to workers over the last few years. In Towers Watson’s 2010 and 2011 surveys, eliminating debt was the action most frequently taken after the financial crisis, followed closely by reassessing retirement savings and reducing daily spending. More employees are spending less and postponing big purchases, up from 49% in 2011 to 56% in 2013 (Figure 7).

Figure 7. I have simplified my lifestyle over the last few years by spending less and delaying major expenditures
Towers Watson Insider - Figure 7. I have simplified my lifestyle over the last few years by spending less and delaying major expenditures
Note: Based on full-time employees enrolled in a retirement plan. “No plan” (n=452) is based on full-time employees. Percentages indicate responses of “agree” or “strongly agree.”

Source: 2013/2014 Global Benefit Attitudes Survey – U.S.

More employees are reviewing their retirement savings frequently

Since 2010, employees have become more involved and interested in retirement planning. Slightly more than half of all employees review their retirement plans frequently (Figure 8). Sixty-three percent of DB plan participants track their savings carefully compared with 48% of DC-plan-only participants.

Figure 8. I have reviewed my retirement savings in a lot of detail over the last year
Towers Watson Insider - Figure 8. I have reviewed my retirement savings in a lot of detail over the last year
Note: Based on full-time employees enrolled in a retirement plan. Percentages indicate responses of “agree” or “strongly agree.”

Source: 2013/2014 Global Benefit Attitudes Survey – U.S.

Older and midcareer workers report greater engagement with retirement than younger workers and saving for retirement is their number one financial priority (Figure 9).

While many employees worry about future health care expenses, two in five do not consider how these costs could reduce their retirement income. Low-income employees, those in poor health and under-savers are less likely than others to consider health care costs in their retirement planning.

Figure 9. What would you say are currently your top financial priorities?

Younger than 40 Age 40–49 Age 50+
1 Housing (60%) Saving for retirement (56%) Saving for retirement (88%)
2 Pay off debts (55%) Pay off debts (49%) Pay off debts (47%)
3 General household costs (54%) Housing (45%) General household costs (44%)
4 General saving (for a "rainy day") (36%) General household costs (45%) Housing (34%)
5 Saving for retirement (32%) General saving (for a "rainy day") (37%) General saving (for a "rainy day") (33%)
6 Leisure and other nonessential spending (19%) To fund children's expenses (28%) Paying for medical expenses (23%)

Note: Based on full-time employees enrolled in a retirement plan.

Source: 2013/2014 Global Benefit Attitudes Survey – U.S.

Internet and mobile apps have become popular ways for workers of all ages to track their finances. Older employees tend to use technology to review retirement plans, while younger ones use it to track household budgets and everyday spending (Figure 10). Overall, 62% of responding workers use mobile apps to manage their finances and 75% say they are effective tools.

Figure 10. Do you use the Internet or mobile apps for any of the following reasons?
Towers Watson Insider - Figure 10. Do you use the Internet or mobile apps for any of the following reasons?
Note: Based on full-time employees enrolled in a retirement plan who use the Internet or mobile apps to manage their finances or retirement plans.

Source: 2013/2014 Global Benefit Attitudes Survey – U.S.

Could employees save more?

As employees spend more time reviewing their finances, they have become more aware of gaps between their savings goals and reality. Sixty percent of survey respondents acknowledge that they need to save more if they hope to retire comfortably. This development has been consistent across all demographic groups over the last few years. Most employees — 83% — know their savings fall short of target amounts, with a 10% gap between what they should save and what they have managed to put away (Figure 11). All groups believe they should save 18% of income, but fewer than one in six are there.

Figure 11. Considering all your savings (in total, including any retirement savings), how much of your income do you think you saved last year?
Towers Watson Insider - Figure 11. Considering all your savings (in total, including any retirement savings), how much of your income do you think you saved last year?
Note: Based on full-time employees enrolled in a retirement plan.

Source: 2013/2014 Global Benefit Attitudes Survey – U.S.

Unfortunately, a third of employees do not consider saving more to be a viable option, and time is running out for workers nearing retirement. Of the options available to those who haven’t saved enough — work longer, save more or live on less in retirement — 60% of older employees say they would work longer (Figure 12). Younger employees are slightly more likely to choose saving more, which could be an overestimation of their savings capacity. However, almost half of younger workers consider delaying retirement to be their best option.

Figure 12. If someone told you that your income in retirement wouldn’t be as much as you wanted, which action do you think you would be most likely to take?
Towers Watson Insider - Figure 12. If someone told you that your income in retirement wouldn’t be as much as you wanted, which action do you think you would be most likely to take?
Note: Based on full-time employees enrolled in a retirement plan.

Source: 2013/2014 Global Benefit Attitudes Survey – U.S.

Delaying retirement is becoming more common

Many workers expect to fall short on their retirement savings, and nearly four in 10 plan on working longer (Figure 13). The number of workers planning to extend their careers has increased nine percentage points since 2009. A large majority of these employees expect to delay retirement by three or more years, and 44% plan on a delay of five years or more (Figure 14). The profile of those delaying retirement tends toward the disengaged, less healthy and more stressed (Figure 13). In fact, more than half (57%) of workers in poor health and 59% of those reporting high stress levels have decided to delay retirement.     

Figure 13. Has the age at which you plan to retire from full-time employment changed over the last three years?
Towers Watson Insider - Figure 13. Has the age at which you plan to retire from full-time employment changed over the last three years?
Note: Based on full-time employees enrolled in a retirement plan. Responses of “Don’t know” were removed.

Source: 2013/2014 Global Benefit Attitudes Survey – U.S.

Figure 14. Approximately how much later do you expect to work?
Towers Watson Insider - Figure 14. Approximately how much later do you expect to work?
Note: Based on full-time employees enrolled in a retirement plan who plan to delay retirement.

Source: 2013/2014 Global Benefit Attitudes Survey – U.S.

These results suggest a higher average retirement age in the future. In 2009, 31% of workers planned on retiring before age 65 and 41% planned on retiring after 65 (Figure 15). In 2013, only 25% of workers planned on retiring before 65 and half expected to retire after 65. One in three employees either expects to retire after age 70 or not at all. Moreover, nearly half (46%) of the workers planning to retire at 70 or older are in poor health, which suggests “hidden pensioners” — older workers who continue working because they cannot afford to retire — on employers’ payrolls in the future with a possible decline in productivity.3

Figure 15. At what age do you expect to retire from all full-time employment?
Towers Watson Insider - Figure 15. At what age do you expect to retire from all full-time employment?
Note: Based on full-time employees enrolled in a retirement plan.

Source: 2013/2014 Global Benefit Attitudes Survey – U.S.

Conclusion

Employees might be on a firmer financial footing now than they were in 2009, but many remain unsettled about their finances and their retirement prospects. Uncertainty around health care costs and erosion in the generosity of Social Security and Medicare are major roadblocks to retirement confidence. Older workers particularly have yet to regain their former confidence in their financial futures. Workers without DB plans and those in ill health are consistently the most worried about their finances and retirement. DB plan participants are moderately more secure and more engaged in reviewing their savings, but they continue to worry about possible changes to their plans and cuts to public programs.

Employees are taking steps to address their lingering worries: spending less, paying down debt and trying to save more. Internet and mobile apps have emerged as popular tools to help employees manage their household budgets and their financial situations. Many workers believe they should save more for retirement and admit they are behind their targets. However, saving more money is difficult given the broader economic pressures they face. As a result, many employees, especially older ones, plan to delay retirement by five or more years.

The heightened concerns around financial security represent an opportunity for employers. Specifically, today’s workforce constitutes a more receptive audience for employers seeking to educate their workers about health care costs and reinforce the value of their retirement programs. The proliferation of mobile apps also represents an opportunity for employers to offer retirement planning tools that can help employees better manage their current finances and put them on a savings path to a more secure retirement.

America’s workforce is aging, with older workers becoming a larger share of the labor market. Many of these workers have no choice but to delay retirement, and a significant number are more stressed, less healthy and less engaged than other workers, thus posing the risk of hidden pensioners on payrolls. Employers might want to act to keep older workers more engaged and to ensure that their retirement programs are aligned with their workforce.

The authors would like to thank Charlene LeBlanc, Billie Jean Miller and Koki Mori for their support in developing this research.


Endnotes

1. Countries include Australia, Brazil, Canada, Chile, China, Germany, India, Japan, Mexico, Netherlands, the United Kingdom and the United States.

2. The margin of error is +/- 1.38% for the total sample.

3. Birchard Wyatt, one of the founders of The Wyatt Company, argued that a worker’s marginal contribution eventually reaches a peak and then begins declining, eventually dropping below the compensation cost of keeping him or her on the payroll. He termed such workers “hidden pensioners.” See Birchard E. Wyatt, “Private Retirement Plans,” Ph.D. dissertation (Columbia University, New York, 1936), 38.