Art by Chris Buzelli
For most Americans, the road to retirement is a long and often uphill journey. Along the way, future retirees encounter a wide range of partners willing to lend support; employers, advisers, investment and service providers—even the federal government—all seek to provide guardrails that can serve to keep savers on track.
Overall, the system seems to be working: People are generally moving in the right direction by increasing their savings amount, but our annual Participant Survey finds that workers participating—or not—in employer-sponsored plans still find themselves a long way from the summit. For example, 40% of all respondents to the 2014 survey reported being either “confident” or “very confident” of achieving their retirement savings goals by age 65, but this year that number dropped to 35%. As was the case last year, the workplace retirement plan is vital to helping people increase their confidence; respondents who lacked access to a workplace savings plan had the lowest levels of confidence, with only 23% “confident” or “very confident” they would achieve their retirement savings goals by age 65.
(No) Easy Street
Despite lower levels of confidence for achieving retirement goals, most workers are not focused on increasing that sense of security. Instead, many are dealing first with more immediate financial concerns. Three in four (76%) respondents report at least “mild” financial stress in their lives, and almost half (48%) report “moderate” to “severe” anxiety. Despite elevated levels of financial strain, many people have not embraced responsible financial behaviors: Only 39% report having a family budget and even fewer (32%) track spending.
Many workers remain interested in receiving financial education through the workplace, perhaps to better embrace strategies to decrease their stress. Common areas of interest were nearly identical to those noted in 2014, with 51% wanting more guidance related to retirement planning, 38% interested in “investing basics/strategies” and 35% seeking help with “savings and budgeting.”
Intuitively, financial stress and retirement confidence are directly related to total savings: 76% of “confident” workers have saved at least $50,000, while only 36% of “not confident” workers have as much. Age also plays a significant role in total savings—only 17% of workers under the age of 30 have saved at least $50,000, versus 77% of those over 50—as does access to a defined contribution (DC) plan—61% of those with such plans have at least $50,000 in savings, versus 24% of workers without access.
With those statistics in mind, it is clear that whatever troubles people face in saving for retirement, employer-sponsored plans have value, and, generally, these plans are valued by their participants, too. Among respondents with access to a defined contribution plan, 82% rated their employer’s plan(s) as “good,” “very good” or “excellent” in terms of the plan’s impact on their ability to save/prepare for retirement. Retirement plans also continue to hold value in terms of attracting and retaining employees, with 37% saying a company’s retirement plan—or lack thereof—was a “very important” or “important” factor when considering employment opportunities, compared with 31% who said the same last year.
Plans that offer employer contributions enjoy even more benefits, as 50% of respondents receiving employer deferrals rated their plan as “excellent” or “very good,” while half as many participants who do not receive any form of employer contribution (25%) said the same. Happy employees also tend to be more confident; more than twice as many respondents who were confident in their ability to reach their retirement goals by age 65 rated their plan as “excellent” or “very good” compared with those who were “not confident”—59% vs. 27%.
Given the overall importance of the workplace retirement plan, improving outcomes for participants and access for those without a plan will require a combination of senior management—i.e., CEO, chief financial officer (CFO) and human resources (HR); service providers—recordkeepers, advisers, etc.; financial markets—“Wall Street;” and the government. Unfortunately, American workers appear to have a general lack of faith in all of these groups. When asked how much they believe those professionals would make decisions that are “100% aligned with [their] needs and/or best interests,” only about one in three “mostly” or “completely” trusted their employer’s management teams to act in their best interests. Distrust of Wall Street and state/federal politicians was especially high, with fewer than one in 15 “mostly” or “completely” trusting these groups.
Interestingly, retirement plan service providers are trusted as much as the worker’s own human resources department, and only 14% of respondents indicated they might pick a different provider to service their account if given the choice.
One of the themes that emerged from the 2014 Participant Survey was the importance of employer contributions in influencing participant behavior. The 2015 survey increased its focus on that data, examining savings behaviors associated with different match rates. When match levels were as low as “100% of the first 3% of salary,” 87% of respondents indicated they were willing to save enough to receive the maximum match. However, that figure dropped to 59% when the match level was stretched to “50% of the first 6% of salary.” When stretched even further to “25% of the first 12% of salary,” which would get participants above the commonly cited deferral benchmark of 10%, it decreased again, to 40%.
While fewer participants maximized the stretched match, almost one in three (28%) did show a willingness to increase their contribution when the match threshold was raised to 6%, and 13% increased their deferrals above 6% when the match was stretched again. Raising the match to “100% of 6% of salary,” while more costly, achieved both goals—inspiring the same one-third (31%) to increase their level of contribution and retaining a high percentage of respondents (70%) willing to save enough to “maximize the match.”