Retirement Savings Behavior Differentials

A recent survey of over 4,000 American workers between the ages of 18 and 65 was recently
conducted by the Empower Institute. Named “Scoring the Progress of Retirement Savers”, and
reported by NAPA Net, the survey pointed out that the median projected income replacement
was 64% where early Boomers were at the low end with 55%, and Millennials at the high end
with 75%.

A key factor in retirement income replacement is the participant’s contribution, which the
authors indicate is critical. Participants contributing less than 3% of pay achieve under 60% of a
median lifetime income replacement; participants contributing 10% or more, achieve an
income replacement of over 100%.

The study revealed a “continuing and urgent opportunity” to stimulate DC retirement security
by pointing out how professional advice can encourage improved projected lifetime incomes
via different plan features.

The Influence of Professional Advisors

Through the establishment of formal financial plans, people with paid advisors ostensibly have
a substantial advantage over those doing it on their own: 99% vs. 58% of the median projected
income replacement.

Participants in automatic enrollment received an 11% lead in median income replacement over
those who opted in.

People participating in a plan with an auto-escalation feature also reap increased benefits,
achieving a median retirement income replacement of 107% (more than a 25% improvement
over plans without this feature).

Clearly, these are steps that advisors can encourage.


Despite the age-old assumption that people in higher tax brackets are more sensitive, the
survey indicated a potential drop of over 25% in contributions by lower-earning respondents:
people earning less than $50,000 are more likely than those earning above this level to alter
their savings decisions if tax benefits change.

Final Note to Advisors

Education and personalization of plans are major components. The report states, “Employees
who are confident in their understanding of various factors […] have a higher median lifetime
income percentage than those who do not”. Also, a most important finding was that
participants rely on their advisors “maintaining confidentiality and privacy”, in which the lack of
this was the most likely reason for an advisor to be fired.

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