Plan Design, Education and Advice Can Improve Participant Retirement Savings

When asked for their outlook on their financial security in retirement, 44% of American workers who participate in a company-sponsored retirement plan believe they will be comfortable in retirement as long as they are careful with their spending, according to a Natixis survey of 1,000 American workers who are eligible to participate in a company-sponsored defined contribution (DC) plan—700 of whom participate and 300 who do not.

By generation, 43% of Millennials say they will be comfortable in retirement as long as they are careful with their spending, 37% of Generation X say the same, as do 48% of Baby Boomers. However, information gathered from the survey about savings indicates these employees may be unrealistically optimistic.

The savings picture

Surveyed Millennials started saving for retirement at age 25, on average, and say they’ll need $822,789 to retire. With an average of $79,764 saved, they’ve reached nearly 10% of their goal. They expect to retire at age 61 and currently are 30 years old, on average. To reach their goal, they will need to save $23,969 annually.

Surveyed members of Generation X started saving for retirement at age 29, on average, and say they’ll need $980,466 to retire. With an average of $166,328 saved, they’ve reached 17% of their goal. They expect to retire at age 64 and currently are 45 years old, on average. To reach their goal, they will need to contribute as much as $42,849 annually.

Surveyed Baby Boomers started saving for retirement at age 32, on average, and say they’ll need to generate $1,018,488 to fund their retirement. With an average of $306,703 saved to date, they’ve reached 30% of their goal. They expect to retire at age 69 and currently are 64 years old on average. To reach their goal, they will need to save roughly $142,357 per year.

Barriers to saving and habits that hurt long-term savings

American workers who participate in a company-sponsored DC plan say daily living expenses (65%) are the biggest obstacle to saving more for retirement, followed by general debt (43%), housing costs (43%) and health care costs (32%). One-quarter say they’d rather spend money to enjoy life now.

For Millennial DC plan participants, daily expenses (61%), general debt (47%), housing costs (40%), education costs and student loans (28%) and health care costs (24%) are cited as obstacles to saving for retirement.

Among those who do not participate in their employer-sponsored DC plan, 34% say it is because their employer does not offer a match or the match isn’t big enough, and 32% report they have too much debt. Fifteen percent cite a need to pay off their student loans, and 13% say retirement is too far away to be a priority now. Fifteen percent say plan fees are too high, 14% report not enough flexibility and choice in investments, and 13% say plan participation is too complicated.

The survey found 27% of DC plan participants have taken a withdrawal from their plan, and when they’ve changed jobs, 22% have taken a lump-sum distribution without saving into another plan.

Match is an incentive to participate

Seventy-nine percent of DC plan participants say their employer offers a matching contribution. Across all generations, the top reason given for participating in their DC plan is the company match, which was cited by 56% of respondents overall (Millennials-56%, Generation X-56%, Baby Boomers-53%).

A bigger company match from their employer would incentivize the majority of Millennials (60%) and Generation X (65%) to save more into their company-sponsored defined contribution plan. Baby Boomers cite bigger tax incentives (59%) as the best way to get them to save more into their defined contribution plan.

However, if the match in their plan were decreased, the majority (74%) of participants say they would continue to save at the same rate, including 73% of Millennials, 75% of Generation X and 76% of Baby Boomers.

DC plan participants also cited the following as incentives to save more:

• Bigger tax incentives (43%);
• A higher contribution limit (24%);
• Having a way to automatically increase their contribution level each year (21%);
• Simplified rules and choices within the plan (18%);
• A student loan repayment program offered through their employer (17%); and
• Getting access to professional investment advice in their plan (15%).

Seventy-six percent of respondents say they would be more inclined to save if they could invest in a company-sponsored defined contribution plan on day one of employment, including 76% of Millennials.

According to the survey, doing some social good within their DC plans would incent more employees to save or save more. Among both DC plan participants and non-participants, 75% indicated they would like their investments to reflect their personal values. Sixty-one percent of respondents say they would be more likely to contribute/increase their contributions if they knew their investments were doing social good, including 66% of Millennials.

Three-fourths of survey respondents believe it is important to make the world a better place while growing their personal assets, and 62% are concerned about the environmental, social and ethical records of the companies in which they invest.

Just 13% of DC plan participants say their retirement plan offers environmental, social and governance (ESG) options, and 60% would like to see more in their plan offering, including 64% of Millennials.

Helping employees improve savings

Sixty-eight percent of employees surveyed believe employers should be required to provide matching contributions in their plans, and 54% believe individual contributions toward retirement savings should be made mandatory.

More than half (53%) say it is the government’s responsibility to provide universal access to a retirement savings plan.

Employers can help employees improve retirement savings by providing more education, as 64% of DC plan participants say they need more education from their employer about their workplace retirement savings plan. For example, less than one in five (14%) workers know the exact amount of the employee 401(k) contribution limit for 2019. In addition, nearly two-thirds (64%) of employees age 50 and older who are eligible to make catch-up contributions are not doing so.

When asked how they felt about market volatility, 41% of DC plan participants say they wish they better understood how volatility affects their investments.

The survey also found professional financial advice helps. Employees with financial advisers contribute a higher percentage of their salary to a company-sponsored defined contribution plan: 7.2% for advised versus 6.5% for non-advised participants. Less than half (48%) of DC plan participants rely on professional financial advice about saving and investing for retirement. Of those who don’t have access to professional financial advice through their company retirement plan, 24% say they wish they did.

The survey included 503 Millennials (23 to 38 years old), 249 Gen X (39 to 54 years old) and 248 Baby Boomers (55 to 73 years old.) Data was gathered in January and February 2019 by the research firm CoreData.