Data & Research March 13, 2017

Americans Less Confident About Retirement Prospects

A large number of Americans are lagging behind in retirement savings, but adviser interaction and effective digital tools may reverse this trend.
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As market volatility persists and a wealth of research indicates Americans would need to save more to retire comfortably, many are trailing behind. According to the latest Financial Freedom Survey by Capital One Investing, just 62% of Americans feel confident they will retire comfortably. That figure is down from 64%, which was recorded during the firm’s previous survey.

The new study found that a range of factors contribute to Americans’ retirement-planning flaws including lack of knowledge and experience (51%), distrust of the financial services industry (49%), and lack of pricing transparency (45%).

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Moreover, inertia is preventing a large number of Americans from saving adequately for retirement. The survey found that although 65% are dedicating portions of their income toward retirement saving, only 49% have a long-term financial plan—highlighting Americans’ need for overall financial wellness and money-management skills. Meanwhile, 32% aren’t saving at all. And even though 39% believe people should be saving at least 15% of their income for retirement, only 13% are doing so.

The Capital One Investing study also offers some insight into how Americans are saving for retirement and their preferences for adviser interaction. The study found technology is a key factor in financial planning. Respondents value financial information aggregators (83%), retirement calculators (73%), technology to connect with advisers (71%), human-digital hybrid solutions (69%), and robo-advisers (56%).

“Today’s investors need a combination of great digital tools and unbiased advice to navigate the markets and get on a path to action and confidence,” says Yvette Butler, president of Capital One Investing. “We’re committed to enabling smart investing habits by delivering straightforward, accessible tools and experiences that leverage the best of technology and human advice.”

When it comes to extreme market volatility, however, the majority (74%) prefer human interaction with advisers. The degree to which investors would seek help from human advisers during times of heightened market volatility seems to vary among generations. Sixty-nine percent of Millennials said they would seek human interaction, while 75% of Generation Xers and 74% of Baby Boomers reported the same.

Capital One Investing’s latest Financial Freedom Survey was conducted with input from more than 1,000 adults ages 18 or older living in the continental United States. More information about the findings can be found at CapitalOne.com

Data & Research March 10, 2017

Few Millennials Making Recommended 401(k) Contribution

Most Millennials are not contributing at least 15% of their income toward their 401(k) plans, but a majority are moving in the right direction, a new study finds.
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Although many financial planners stress that employees aged 18 to 34 should contribute at least 15% of income into their 401(k) plans, a new survey by Scarborough Capital Management found that only 22.5% of individuals within that age group are doing so.

Still, the survey unveiled some positive trends. The study found that 72.8% of this age group are investing anywhere from one to 10% of their paycheck into a 401(k). Moreover, 58.5% of Millennials are able to save between five and 10%.

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Gregory Ostrowski, a financial planner with the firm, believes it’s a sign that this generation is developing better money-management habits.

“Understanding the need to save, the ability to obtain ‘free money’ from an employer match — if available — and the overall concept of slicing off some of the budget for the future is a wonderful start,” he says.

But Ostrowski cautions that Millennials have plenty of room for improvement.

“In reality, we need to see savings rates toward 15% to have the type of long-term outcomes most are looking for,” Ostrowski explains. “A 15% deferral rate over the course of a career puts a saver in a better position to have a similar lifestyle in retirement as they had during their working career.”

Nonetheless, Ostrowski acknowledges this would be no easy task, and that merely setting financial goals is a stretch away from taking action. “So many recent grads have faced the perfect storm: they’re saddled with student loan debt, many have faced a brutally competitive job market, and those with jobs have seen little to no wage growth. It’s tough to carve off savings when everything’s already accounted for.”

But everyone needs to start somewhere, and Millennials at least have time on their side. Like several certified financial planners (CFPs), he says there is no rush in saving so much right away. “Start small. At the very least, if your employer has a 401(k) match, do everything in your power to get it. If you can save 5 or 6% and you’re getting another 5 or 6% from them on top of that, then you have doubled your savings rate.”

Ostrowski notes that those without access to an employer match still benefit from compounding.

He suggests “start at 4% and set a note on the calendar to increase by 1% every 6 months. I’ve advised hundreds of young savers over the years on this technique and it’s a great way to incrementally make moves in the right direction, and in a way that your cash flow is not crimped all at once.”

The full results of the survey can be found at scmadvice.com/401k-pulse-report.

Research Now conducted a nationally representative digital survey on behalf of Scarborough Capital Management. The survey was conducted from February 10, 2016, through February 17, 2016, and consisted of 1,004 Americans throughout the United States older than 18 with 401(k)s. 

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