Ready or not? Lifetime income and other retirement readiness drivers

Oct 12, 2021
  • BlackRock

It’s well studied that factors like debt and financial uncertainty impact the way people feel about retirement and prepare for it. In this series, BlackRock explores insights from our 2021 DC Pulse research and additional work with the Employee Benefit Research Institute (EBRI) to recognize inequities and find ways to build a better retirement for all.

Saving for retirement is a decades-long endeavor with factors – both excepted and unexpected – that can affect confidence and preparedness. Even though much of the conversation has centered around amassing a nest egg, it’s also important to look at what else can be done to improve retirement readiness for all.

Recent research conducted by BlackRock as well as the Employee Benefit Research Institute (EBRI) Retirement Confidence Survey both offer insight into the factors that are holding people back from their retirement goals. It’s important to examine, because according to the EBRI data, few people say other financial goals are more important than saving for retirement.

While 2020 brought a pandemic, market volatility and job losses, retirement confidence for many remains high and steady. BlackRock’s 2021 DC Pulse survey revealed that 7 in 10 retirement plan participants felt “on track” with their savings to retire with the lifestyle they want. There’s more beneath the surface, though. A deeper look reveals that despite this rosy outlook from participants broadly, some are left behind.

A better retirement for all is an equitable one, and today’s differences across gender and racial lines are stark. For instance, BlackRock’s DC Pulse study found that women are nearly 20% less likely to report they are “on track” for retirement compared to men, with concerns around outliving their savings having major influence.

The EBRI survey also showed that both male and female Black and Hispanic people are significantly less likely to have saved for retirement at all, a trend that’s true across all income levels for those two groups, but quite significant in lower income quartiles. Even among people earning more than $75,000 a year, the EBRI data found that 89% of white people reported saving for retirement compared to 84% of Hispanic people and 78% of Black people.

Expanding access to income in retirement

One of the easiest ways to help broadly increase retirement readiness is to ensure that more people have access to plans in order to prepare. EBRI data revealed that people who were invested in a workplace retirement plan were much less impacted by the pandemic than those that lacked access. Having a plan helps instill strong savings habits that last, even in the face of events like market volatility.

That opportunity to save through a workplace retirement savings plan differs significantly across income groups though. 87% of people who earned over $75,000 a year had access to a retirement plan through their employer, compared to only 45% who made less than $35,000. Lower income and part-time workers are often left to figure out retirement on their own, an issue that could partially be addressed with legislation in the future.

Of those that are offered a workplace retirement savings plan, more than four in five workers say they are satisfied with the benefit according to EBRI data. But even if they have access to a plan, most participants simply aren’t sure how to calculate the amount they may need and how to make it last.

One thing that is known according to the surveys: how guaranteed lifetime income is associated with higher confidence and satisfaction. Improving on the offerings within workplace retirement plans can increase readiness without burdening savers. In fact, it may even allow participants to focus on other financial obstacles currently preventing them from saving more for their future.

DC Pulse reveals that 8 in 10 participants say it would be helpful if their employer provided secure income generating options in their workplace retirement savings plan. And 89% even agree that knowing they’ll have guaranteed income in retirement would positively impact their well-being today.

The EBRI data is consistent. It finds 75% of workers currently contributing to their plan would like to invest in an option that guarantees monthly income for life in retirement. That sentiment is consistent across race, income, and generation.

Enhancing the well-being of savers is a challenge more and more employers are focused on. 96% of those surveyed in DC Pulse agree they feel responsible for the retirement preparedness of their workforce.

We know that short-term requirements also tend to take precedence over retirement and its long horizon.

One top of mind concern with major impact is emergency savings. BlackRock’s research highlights the importance of that safety net. Nearly half of all people say their short-term savings and being secure today makes them more confident about the long-term and their financial future.

Having this foundation in place plays a major role in increasing retirement readiness. We know from DC Pulse that 56% of participants would save more for retirement if they had an emergency savings fund set aside.

By addressing retirement income – and other readiness concerns -- people can focus on building a safety net and a strong financial foundation. With that, they can better prepare for retirement.