Regularly meeting with a financial advisor and “paying yourself first”—putting money into savings before discretionary spending, correlate to higher confidence. Image: noppawan09/Shutterstock.com
By: FEDweek StaffHitting the lottery. Marrying into money. Working into your 80s. Living like Ebeneezer Scrooge before the parade of ghosts.
All possible ways to become confident you will have a financially secure retirement, however unlikely the first two may be and however undesirable the latter two may be.
Maybe it would be better instead to make a plan and carry it out?
Because that actually works, according to a new study of retirement confidence. Those come out regularly, of course, but this one is notable because it focuses specifically on federal employees and retirees, based on a survey the Thrift Savings Plan conducted of account holders last summer.
The “financial wellness” survey among other things asked “How confident are you that you are on track to/have saved enough income to support a comfortable lifestyle throughout your retirement?” on a 1 to 5 scale, with 5 being the most confident.
Among current employees, 52 percent had a level 4 or 5 confidence, 26 percent were neutral at level 3, and 22 percent only a level 1 or 2. Among retirees the figures were 69 percent confident, 18 percent neutral and 13 not confident. In both cases those were slightly lower than in the prior similar survey in 2020.
Of those who are not confident, “the top concerns are: not saving enough (67%), inflation (38%) and out-living savings (33%),” the TSP said.
In contrast, the “top three drivers of confidence are: having an idea of how much is needed, tracking savings, and managing investments.”
It found that only 41 percent of active employees say they have an idea of how much they need to live comfortably in retirement; those who do most commonly use estimates of annual or monthly needs (vs. other ways of estimating such as retirement income as a percentage of final salary).
But more importantly, 82 percent of those who have such an idea are confident in their retirement security vs. only 30 percent of those who don’t have such an idea. Similarly, 73 percent of those who track savings and investment totals are confident vs. only 37 percent of who don’t; and 74 percent of those who manage their investments and make allocation adjustments are confident vs. 47 percent of those who don’t.
“These results emphasize the importance of setting a retirement saving goal and being engaged with managing finances and retirement planning,” the TSP said.
Other characteristics related to substantially higher levels of confidence include regularly meeting with a financial advisor and “paying yourself first”—putting money into savings before discretionary spending.
Those five were among a total of eight financial behaviors listed—the others were controlling/paying down debt; having a budget; and reviewing, understanding and managing credit. “The more money management practices they use, the more likely respondents are to be confident in a comfortable retirement,” it said.
Specifically: Of those who follow at least five of the eight behaviors, 76 percent are confident and only 10 percent are not confident; of those who follow three or four, 50 percent are confident and 18 percent not confident; of those who follow zero to two, only 43 percent are confident and 33 percent are not confident.
This was not just an intellectual exercise for the TSP, of course; it was meant to understand what features investors would find most valuable. Not surprisingly, the top three of six possible options were: a tool on how to withdraw your TSP funds to make them last through retirement; a tool to determine how much you need to save in the TSP for retirement; and a tool that tells you if you are on track to save enough.
Given how long it takes to make such changes in the TSP, don’t expect to see those features anytime soon. In the meantime you can apply such insights on your own, and there’s no better time than now.
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See also,
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The Best Ages for Federal Employees to Retire
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