Data & Research August 17, 2015

Many Workers Wish They Had Started Saving Earlier

The majority are open to automatic enrollment and escalation.
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Nine in 10 workers have at least some regret about when they started saving for retirement, American Century found in a survey of 2,031 defined contribution plan participants. Seventy-five percent said they could have saved at a little more in the past. More than half point to the first five years of working as they time when they could have saved more than they did. A majority said not saving enough for retirement was one of the biggest mistakes of their lives.

Despite this regret, half of those aged 55 to 65 and 60% of those 25 to 54 admit they are still saving less than they should.

“Retirement plan participants have a great deal of regret about their past saving behavior” says Diane Gallagher, vice president of defined contribution investment only (DCIO) practice management at American Century. “Plan participants aren’t expecting to be rich. They are really aspiring for independence, rather than affluence. Also, they realize it’s important to save through their defined contribution plan, but they look to their employers to help them establish positive saving and investing patterns.”

In fact, given a choice between two job offers—one with a retirement plan and one with a higher salary—pre-retirees are five times more likely to choose the retirement plan offer, demonstrating how much workers, especially older workers, value employer-sponsored retirement plans.

NEXT: Expectations of their employers

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Eighty percent of those surveyed said they would have more savings had their employer given them a “slight nudge” to save more. Seventy percent favor automatic enrollment starting at 6%, and more than half support that initiative for all employees rather than just new hires. In addition, nearly 80% would accept automatic escalation.

As to using target-date funds as the default investment, 68% of pre-retirees and more than 70% of those aged 25 to 54 are in favor. Few participants believe their employers have done everything possible to help them prepare for retirement. Only 14% of all of those surveyed and 11% of pre-retirees say their employer did everything possible to encourage them to save.

More than 70% said retirement is one of their biggest financial goals, if not the No. 1 goal. However, 90% of pre-retirees and 70% of the younger group expect their standard of living to be roughly the same or worse than it is today.

“Even though plan sponsors don’t think participants want them to intervene, in reality, they are looking for a higher level of support,” Gallagher says. “Participants are willing to make adjustments to their current lifestyle, rather than suffer the consequences later. Although participants are technically able to drive, they are willing to be attentive passengers with their plan sponsors steering the car.”
Data & Research August 17, 2015

Working With Adviser Boosts Confidence Even Among Affluent

Even for the rich, working with an adviser to develop a written plan boosts retirement confidence, LIMRA study finds.
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Just because affluent Americans approach retirement planning with far more assets than average savers doesn’t mean they are not anxious. In a study, the LIMRA Secure Retirement Institute found nearly 70% of affluent consumers said maintaining their lifestyle in retirement was a top financial goal.

More than 80% of the affluent are confident they will be able to live their desired lifestyle in retirement, but despite substantial assets, only 4 in 10 are “strongly confident.” The reasons range from market volatility and rising inflation to living longer in retirement and unexpected events.

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The study found those who work with an adviser to develop a formal written plan to manage their assets experience increased confidence. About half of those with written plans (54%) said they were “very confident” about living their desired lifestyle in retirement.

In fact, that written plan seems to kick off a cycle of positive feelings and behavior, a kind of trust flowchart. The confidence sparks adviser satisfaction with the adviser, which fuels trust in the adviser, leading to more business. Only half of affluent consumers, however, have a formal written plan.

The study pointed out that once a written plan is in place, both adviser and client can pursue realistic planning and improve preparation for retirement. With a plan, 30% of affluent households feel “extremely well prepared” for retirement compared with only 17% who do not have a plan.

As confidence and preparation rise, the actions that follow benefit both client and adviser. Forty percent of those with a plan give their advisers perfect scores on satisfaction measures versus 14% of those without a written plan. In turn, clients have more trust in the advice they receive and look to consolidate more of their assets with their adviser: 55% of clients consolidated three-quarters or more of their assets with their adviser. 

The LIMRA Secure Retirement Institute looked at American investors at three asset levels: $500,000 to $999,999; $1 million to $3.5 million; and $3.5 million-plus. More information is at LIMRA’s website.

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