However, many defined contribution (DC) investors are hampered by an “action gap” caused by the disconnect between understanding what is important and knowing how to take action, according to a survey of plan participants released by State Street Global Advisors (SSgA).
Seventy-eight percent of survey respondents reported they know it is important to determine how much to save for a secure retirement but only 33% claim to have the knowledge to determine that amount. The majority, 83%, of respondents said they could cut their household budget by at least 5% to save more–including 64% that said they could reduce their budget by 10% or more.
In addition, 52% of respondents would be willing to increase their savings rate to as high as10% if their employer automatically increased their savings rate by 1% each year.
The bi-annual SSgA Defined Contribution Investor Survey, conducted jointly with the Boston Research Group uncovered three findings that are especially important for helping employers and employees improve retirement outcomes for DC investors:
- Savings willingness and elasticity, or flexibility in budgets to save more, are significant;
- Participants display a significant “Action Gap” between understanding the need to take action and possessing the knowledge to do so; and
- Simplicity and repetition are key to engaging employees to help close the “Action Gap.”
The survey found approximately 40% of respondents expressed uncertainty about the risk and return characteristics of common investments found in 401(k) plans, including international equity funds, stock index funds, and stable value funds. More than half of survey respondents admitted they do not know what target date funds (TDFs) are, or are not familiar with how they work.
Approximately 67% know adjusting their investments over time is important, but only 30% say they know how to do this. In addition, 82% think it is important to know how to make retirement savings last a lifetime, but just 28% reported they know how to achieve this.
“We believe the more we can help employers understand the reasons for the action gap, the better equipped they can be to help employees take steps to save more and invest more wisely,” said Kristi Mitchem, senior managing director and head of Global Defined Contribution for SSgA.
The bi-annual SSgA Defined Contribution Investor Survey, conducted jointly with the Boston Research Group, surveyed more than 1,000 401(k), 403(b), 457 and profit sharing plan participants1 to identify their behaviors and perceptions about saving and investing.