Retirement confidence has been the topic of study after study by public policy experts, the financial services industry, academics, retiree organizations and just about anyone else with a stake in the issue. Generally those studies are rather discouraging, but they also have only limited application to the federal workforce with its specific retirement benefits package.
Recently, OPM specifically looked at retirement confidence of federal employees, taking those benefits into account. And that was rather discouraging in some ways, too. The context was an analysis of results of the most recent Federal Benefits Survey, which it conducts on an irregular basis once every few years.
Said OPM, “Preparing for retirement can often feel like a lifelong challenge and is something employees are urged to contemplate at the beginning of their careers. Moreover, it has become increasingly difficult for employees to feel confident that they are adequately prepared to maintain their current standard of living as they move into retirement.”
Among the roughly 10,000 respondents, slightly more than half were confident that they will have enough money to take care of their basic expenses in retirement—41 percent agreed, 13 percent strongly agreed. Another 16 percent disagreed, 5 percent strongly disagreed and the other 26 percent neutral. (Note: Because the survey was conducted before the pandemic hit and sent the financial markets down and the unemployment levels up, chances are that confidence is lower today.)
As it turned out, those figures almost exactly paralleled the responses to a question asking whether they know how much money they will need to live comfortably in retirement. In that case, 41 percent agreed, 14 percent strongly agreed, 19 percent disagreed and 5 percent strongly disagreed, with 21 percent neutral.
Almost as closely associated, just 46 percent agreed or strongly agreed that they know how their retirement benefits will be calculated, while 34 percent disagreed or strongly disagreed and the rest weren’t sure—essentially also a no answer. Responses to a question asking whether they knew how to get information on their benefits broke down along similar lines.
That’s discouraging given that the same survey showed that retirement benefits are a major reason people take federal jobs in the first place (79 percent said availability of an annuity influenced that decision for them to a moderate or great extent) and an even bigger reason they stay with the government (89 percent).
There are understandable differences by age. Among Baby Boomers, 65 percent agreed or strongly agreed that they know how much money they need to live a comfortable lifestyle, compared with 53 percent of Generation X and 44 percent of Millennials.
Similarly, 55 percent of Boomers agreed or strongly agreed that they understand their retirement calculations, compared with 42 and 36 percent. In terms of understanding of their retirement benefits in general, 58 percent of Boomers agreed or strongly agreed, compared with 42 and 35 percent.
That’s slightly encouraging but only slightly. Baby Boomers by definition are at the age where retirement is at least on the mid-term horizon, if not the short-term future, and the oldest of Generation X are just on that threshold.
If you’re among the 46 percent of all federal employees who can’t say for sure that they’re confident they can live comfortably in retirement, is one reason that you’re also among the 46 percent who can’t say for sure that they have assessed their retirement income needs?
After assessing your need for retirement income, you’ll want to assess the potential sources of that income. That should start with understanding your annuity benefits but also should extend to understanding the TSP and any other sources such as a spouse’s annuity benefits and Social Security.
In sum, it’s hard to be confident about your retirement security if you don’t even know how much you will need to live on and where it will come from.