Data & Research June 25, 2015

More Americans Delaying Retirement

Financial constraints are also causing many to delay a wide number of major life events.

Reported by

People hamstrung by a lack of savings are delaying a wide number of major life events, such as retiring, buying a home, going to graduate school, getting married or even starting a family. This is the finding of a survey by the American Institute of Certified Public Accountants (AICPA).

Eighteen percent are delaying retirement, up from 9% in 2007; 24% are putting off higher education, up from 11%; 22% are postponing buying a home, up from 14%; 19% are delaying a medical procedure, up from 9%; 12% are putting getting married on hold, up from 6%; and 13% are delaying having children, up from 5%. Overall, 51% of Americans have postponed at least one important life decision in the past year due to financial concerns, up considerably from 31% in 2007.

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Asked specifically what kinds of financial setbacks they are facing, 60% said a lack of savings, 50% reported concerns about the U.S. economy, 39% claimed difficulty paying non-mortgage bills, and 29% cited medical bills. Other drawbacks: taking care of elderly parents (29%), paying down credit card debt (28%), the fear of losing their job (27%) and difficultly making mortgage payments (25%).

These concerns are somewhat surprising, given that many Americans say they have recently taken positive financial steps, such as improving their financial behavior since the recession (85%), following a monthly budget (58%), increasing their savings rate (44%) and contributing to an emergency fund (35%).

The findings suggest that retirement plan advisers and sponsors need to do a more rigorous job of helping people with their overall financial wellness.

If people do not have adequate savings, then their decision to delay major life events makes sense, says Ernie Almonte, chairman of AICPA’s National CPA Financial Literacy Commission. “When making major life decisions like buying a home or getting married, it’s crucial that you consider both the short- and long-term financial implications,” he says. “If you don’t have adequate savings in place or you’re having trouble paying your bills, it may make sense to hold off on major life decisions until you’re on more solid financial footing. The most reliable way to afford the costs of major life decisions is to start saving at a young age and increase your savings rate whenever possible.”

AICPA’s National CPA Financial Literacy Commission recommends that people take the following four steps to improve their financial outlook:

Start or increase their savings rate;
Start or continue to follow a monthly budget;
Use their credit cards less frequently; and
Start or add to an emergency fund.

Harris Poll conducted the survey for AICPA in March, interviewing 1,010 adults by telephone.

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Data & Research June 25, 2015

Gen Y Concerned About Retirement Savings Safety

They want safety from market volatility, and they don’t think Social Security will be there for them.

Reported by

Rebecca Moore

Thirty-four percent of Generation Y (ages 18 to 34) Americans say if they could choose one primary goal for their retirement plan, it would be to ensure that their savings are safe, no matter what happens in the market, according to a TIAA-CREF survey.

Only 16% of Americans ages 35 to 44 and 22% of Americans ages 45 to 54 say the same. Ed Moslander, senior managing director and head of institutional client services at TIAA-CREF in New York, tells PLANADVISER that the savings conservativism of Gen Y is surprising. “I get that they watched their parents or relatives suffer through the recession, but safety beating out growth as the biggest concern for investing was surprising.”

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In addition, 42% of Gen Y say the primary goal would be to provide a guaranteed monthly income in retirement that would cover living expenses, as do more than half of older generations.

Sixty-one percent of Gen Y respondents say they would be willing to devote a portion of their retirement savings to an investment that will provide a monthly payment for the duration of their retirement—the highest percentage of any age group surveyed. However, 72% of those in Gen Y are unfamiliar with annuities, and 62% say they don’t know if their retirement plan even offers an option for a monthly payment in retirement.

One thing plan sponsors and advisers should take from survey, according to Moslander, is that the point of a retirement plan is to provide retirement income, and Gen Y may be more open to that message due to their insecurity and concern about the future. “The message to leave assets in the plan and think of it as savings to provide retirement income from the day they enroll until the day they retire may resonate more with Gen Y than their elders.”

One-third (34%) of Gen Y respondents say they plan to accrue retirement savings to allow them to live comfortably for more than 25 years in retirement, compared to only 26% of respondents overall. However, 31% are not currently saving any money for retirement, due in part to financial challenges like student loans or jobs that do not offer retirement plans.

Coming up: What plan sponsors can do to help Gen Y.

Only 56% of Gen Y report they are counting on Social Security to provide income in their retirement, compared to 76% of 35- to 44-year-olds and 73% of 45- to 54-year-olds. Moslander says Gen Y’s lack of confidence that Social Security would provide income in retirement was another surprise. “The program’s been around for 80 years. The idea that it will not be around at all rather than just provide a lower benefit for them is startling," he says.

Moslander says a couple of things plan sponsors can do to help Gen Y save adequately for retirement is to automatically enroll them in their retirement plans and automatically escalate deferral amounts. “This is key to help them get off on the right foot,” he says.

But he also thinks the industry might want to consider that the vast majority of Gen Y will default enroll and will end up in a qualified default investment alternative (QDIA), most of which are target-date funds (TDFs). “At their age, they will be invested 80% or 90% in equities, which may or may not be appropriate, but plan sponsors should look at the risk in TDFs at later ages.”

Moslander adds that it is important for plan sponsors and advisers to not only emphasize to Gen Y saving for the long-term, but also that asset allocation matters and should change at different stages in their lives.

The survey was conducted by KRC Research by phone among a national random sample of 1,000 adults, age 18 years and older, from January 7 to 13, 2015, using a combination of landline and cell phone interviews.