Opportunities to Influence Employees’ Ability to Retire

Workers Regret Not Saving More for Retirement:

American Century Investments’ fifth annual Plan Participant Study indicated that roughly 90% of retirement plan participants articulated regret about their retirement savings habits. Those who reported having a “great deal” of regret — pre-retirees in the 55-to-65 age group — rose by 5% just in the past two years.

“Not saving for retirement was cited as the most common personal regret — more than not being a better person or having better personal relationships,” Diane Gallagher, American Century Investments vice president for client marketing stated, “People recognize the importance of saving but lack that general direction or push to get started.”

Consider This:

A survey conducted during the third quarter among 1,500 full-time workers between ages 25 and 65 who were participating in their employer’s retirement plan, projected their retirement at some point, and were not government worker was done by Washington, D.C.-based Mathew Greenwald and Associates.

Participants indicated that they most regretted the first five years of their working lives, with over 90% stating it would be “at least somewhat important to tell their younger selves to save more.” Interestingly, a full 75% acknowledged that their early-career self would be only “somewhat likely” to accept that advice.

Not earning enough, having debts to pay off and incurring unexpected expenses accounted for the participants most common barriers to saving. When asked to grade themselves, they gave themselves a “C” for how good they did in setting aside money for retirement, given their resources and circumstances.

“We continue to see this disconnect in people knowing what they ‘should do’ against what they actually do with respect to saving,” American Century Investments’ Gallagher said. “Although participants recognize that responsibility and gravity, they still struggle with overcoming inertia to move forward.”

Employers’ Stimulus

These study results underscore the importance employers play in encouraging participants to save for retirement.
Almost half of survey respondents indicated their employer’s role was crucial in getting them to save. They graded their employers at a ‘B-’ for the job done offering a retirement plan that presented the opportunity to save, invest and accumulate retirement savings.

The survey posed two possibilities:

• Receive a 100% match on their 3%-of-salary retirement plan contributions or
• A 3% higher salary.
• 77% of pre-retirees and 75% of younger respondents indicated they would take the match;
• 78% of pre-retirees and 69% of the others chose a match when asked about substituting 6% for 3%.

Gallagher said, “The idea that employees would accept a higher match over higher salary may have implications for plan sponsors and their consultants in structuring compensation and benefit programs. It is certainly a perspective that is worth examining within a particular organization.”

Approximately 4/5ths of the participants considered the defined contribution plan one of the most important benefits offered, and 2/3rds said they felt optimistic about a company that offered auto-enrollment, automatic increases and target-date funds.

Clearly, automatic plan features are important to participants who would appreciate defaults around saving rates and investments to assist their investments foundation.

Most of the respondents agreed that the company they work for should offer automatic features. A full 75% believed automatic enrollment at 6% was something the company should do, with over 60% indicating the company should implement this retroactively. 80% of those surveyed expressed interest in a regular, incremental automatic increase, and backed plan investment re-enrollment into target-date solutions.

57% of pre-retirees and 58% of younger participants said they would prefer an employer-run plan over a state-run retirement plan where employers automatically enroll employees.

A growing number of defined contribution plans offered by large employers are adding auto-enrollment, auto-escalation of contributions and Roth options as enhancements to their plans.

Contact us so that we can assist you in making adjustments and improvements to your offerings.

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