Data & Research March 6, 2017

Majority of Americans Vastly Underestimate Retirement Needs

Fidelity gauged people’s investment knowledge with an eight-question quiz.
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Seventy-four percent of Americans underestimate how much they will need for a comfortable retirement, Fidelity Investments found in its first-ever Retirement IQ Survey. Twenty-five percent think they will need two to three times their last full-year income. For those in the 55 to 65 age bracket, 19% have this perception. The fact is, most financial professionals say people need 10 times their last year’s salary to exist in a secure retirement.

This was one of eight questions Fidelity asked of 2,054 people last December. The second question was, in how many years over the past 35 years did the stock market produce a positive return? Only 8% answered correctly: 30 years. “Even with market volatility, the stock market has performed remarkably well over the long term,” notes Ken Hevert, senior vice president of retirement at Fidelity.

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Next, Fidelity asked, if you were able to set aside $50 every month for retirement, how much would that accrue to within 25 years? Sixteen percent answered $40,000 correctly.

If you were to retire at age 65, how long would you need your retirement savings to last, was Fidelity’s next question. It’s 85 for men and 87 for women—meaning that the savings would need to last for approximately 22 years. Only 33% of folks got that right.

NEXT: Social Security benefits

Asked what was the average monthly Social Security benefit in 2016, 43% answered $1,300 correctly. What percentage of your savings should you withdrawn each year, was Fidelity’s next challenge to survey participants. Forty-two percent of pre-retirees and 38% of those over the age of 55 responded correctly that it is no more than 4% to 5%.

Asked what retirees’ biggest expenses are, only 17% correctly identified housing. Rent or mortgage payments can consume nearly half of one’s expenses in retirement. Finally, asked what a couple retiring at age 65 will need to cover their health care costs throughout their retirement, only 15% correctly answered that it is $260,000.

“If you’re like most Americans, health care is expected to be one of your largest expenses in retirement, after housing and transportation costs,” Hevert says. “But unlike previous generations, most of us won’t have access to employer- or union-sponsored retiree health care benefits. That’s why these costs will likely consume a larger portion of your budget—and you need to plan for that.”

Data & Research March 3, 2017

Highlights from the PLANSPONSOR DC Survey: Plan Benchmarking

A deep dive into how sponsors are benchmarking their plans—and the results.
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Retirement plan participation and deferral rates both rose again, according to the 2016 PLANSPONSOR Defined Contribution (DC) Survey, as did the percentage of plans with immediate eligibility and immediate vesting. Some could argue that such changes are within the survey’s margin of error, but the five-year trend for these values shows a growth rate that is unquestionably positive

For plan sponsors, benchmarking plans is more relevant than ever, considering avoiding lawsuits, attaining and retaining employees and contending with budgetary and investment pressures.

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Comparing plans, or benchmarking, usually falls into one of three categories: 1.) Fee benchmarking, 2.) Hunting for best practices, and 3.) Competitive/peer benchmarking.

When benchmarking fees, sponsors look to ensure that the fees they are paying into their plan are reasonable. Best practices typically focus on improving participation and deferral rates, in order to drive better outcomes. And looking at what competitors are doing vis-à-vis their plan is typically with an eye to retaining and attracting key talent.

This year’s survey found that plans have a median participation rate of 86%, with participants saving a median of 6.5%. Seventy-nine percent of plans permit their participants to take out loans, and 37% allow their participants to begin participating in their plan immediately upon hire. Forty-two percent of plans automatically enroll their employees into the plan, and when they do, 66% use atarget-date fund (TDF) as the default investment.

A full three-quarters, 75%, of plans offer a company match, and slightly more, 76%, offer some form of investment advice. Fifty-eight percent of sponsors have figured out what provider fees have been in the past 12 months, and 68% use a financial consultant or adviser. Only 31% are confident that their employees will reach their retirement goals by age 65.

 

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