Workers Saving Too Little to Retire

By KELLY GREENE and VIPAL MONGA
Workers and employers in the U.S. are bracing for a retirement crisis, even as the stock market sits near highs and the economy shows signs of improvement.

New data show that powerful financial and demographic forces are combining to squeeze individuals and companies that are trying to save for the future and make their money last.

Fifty-seven percent of U.S. workers surveyed reported less than $25,000 in total household savings and investments excluding their homes, according to a report to be released Tuesday by the Employee Benefit Research Institute. Only 49% reported having so little money saved in 2008.

The survey also found that 28% of Americans have no confidence they will have enough money to retire comfortably—the highest level in the study's 23-year history.

The same forces are weighing on corporate balance sheets. Based on another recent report, the Society of Actuaries said that rising life expectancies could add as much as $97 billion to corporate pension liabilities in coming years, an increase of up to 5%.

While Americans are living longer, the extended life spans will make it tougher for workers trying to stretch retirement savings and put additional strains on pension plans.

Scott Ghelfi, 49 years old, a small-business owner in Falmouth, Mass., and his wife own two candy stores and a children's clothing shop. He said they didn't make their normal $24,000 contribution to their retirement plan two years ago because they couldn't afford to take the money out of the businesses.

The total amount in the couple's retirement accounts is less than $200,000, which he considers inadequate.

"Sales are fine, but we're not growing rapidly like we were several years back, and everything is more expensive," Mr. Ghelfi said.

He isn't alone. The percentage of workers who have saved for retirement plunged to 66% from 75% in 2009, according to the Employee Benefit Research Institute survey.

Only about half of the 1,003 workers and 251 retirees surveyed said they were sure they could come up with $2,000 if an unexpected need were to arise in the next month.

Saving for retirement is a big goal for many folks. Here's a look at how much they're saving, how prepared they feel and what their adviser is telling them.

"Workers are recognizing there is a crisis," said Alicia Munnell, director of the Boston College Center for Retirement Research. She noted that companies continue to do away with traditional pensions.

The survey of workers and retirees was conducted in January, even as the U.S. stock market was heading toward new highs.

Many people are struggling to make sure they don't run out of money in retirement, said Jack VanDerhei, research director at EBRI, a nonprofit in Washington, D.C.

The EBRI survey doesn't count traditional pensions, which are designed to provide retirees for steady income throughout their lives.

But pensions have become a much smaller component of Americans' retirement-savings mix over the years. The portion of private-sector U.S. workers covered only by so-called defined-benefit plans fell to 3% in 2011 from 28% in 1979, according to U.S. Department of Labor data compiled by EBRI.

Companies that still offer pensions might have to kick in more money to account for longer life spans.

The Society of Actuaries in September released the first update since 2000 to its mortality projections for U.S. retirement plans, which project life spans for pensioners.

The report offers assumptions that actuaries use to project mortality rates.

Companies are expected to start using the new assumptions this year.

According to the society, a male who reaches age 65 in 2013 is expected to live an additional 20.5 years, up from 19.5 in the earlier projections. Women turning 65 this year are now expected to live an additional 22.7 years, up from 21.3.

Although the increases might seem small, Bruce Cadenhead, chief retirement actuary with Mercer, a consulting unit of Marsh & McLennan Cos., MMC -0.69% said they are the largest he has seen in more than 25 years.

"It represents a meaningful jump in liabilities," he said.

Goodyear Tire & Rubber Co. GT +1.55% cited the growth in the life expectancy for its plan's beneficiaries as one reason its global pension-funding gap widened to $3.5 billion last year from $3.1 billion in 2011. A Goodyear spokesman said it made the mortality adjustment "because we saw an increase in [the] actual longevity of our participants."

U.S. pension obligations for all publicly traded companies based in the U.S. totaled $1.93 trillion at the end of 2012, up from $1.60 trillion in 2008, according to Mercer.

The effect of longer life spans on pension obligations has been dwarfed by the impact of declining interest rates over recent years. Because of the way pension obligations are calculated, lower interest rates means that future obligations are higher today.

But interest rates are likely to rise at some point, which will lessen pension obligations. That is less likely with longevity assumptions.

"Rates can go up," said Rama Variankaval, an executive director in the corporate finance advisory group of J.P. Morgan Chase JPM -0.64% & Co.'s investment bank. "Mortality is more of a one-way street."

Individuals face the same problem, Mr. Cadenhead said: "If we're asking them to provide for their own retirement, they're living longer, and it takes more money to provide for their own needs over the course of a lifetime."

Joe LaCascia, a 75-year-old retired insurance broker in Polk City, Fla., said he and his wife thought they would have enough savings outside their life insurance policies to last until age 95.

Now, he estimates he only has enough to last until they're 85.

He said he is more concerned about what the future holds for his children, a 51-year-old art director-turned-roadie and a 49-year-old third-grade teacher.

"They're never going to be able to create wealth, other than what our generation leaves them and what they do with it," he said. "They have more uncertainty than we have."