The survey from the Employee Benefit Research Institute (EBRI) shows 18% are now very confident (up from 13% in 2013), while 37% are somewhat confident. Twenty-four percent are not at all confident (statistically unchanged from 28% in 2013).
This increased confidence is observed almost exclusively among those with higher household income, but confidence was also found to be strongly correlated with household participation in a retirement plan (including an individual retirement account (IRA)). Nearly half of workers without a retirement plan were not at all confident about their financial security in retirement, compared with only about one in 10 with a plan.
Ninety percent of workers participating in a retirement plan had saved for retirement, compared with just one in five of those without a retirement plan. Cost of living and day-to-day expenses head the list of reasons why workers do not save (or save more) for retirement, with 53% of workers citing these factors.
Having a retirement account matters—both in terms of retirement confidence and in terms of preparation, Nevin Adams, director of Education and External Relations at EBRI, and co-author of the RCS report, tells PLANADVISER. “The 2014 RCS found that respondents with a retirement account were about twice as likely to have done a retirement needs calculation and to have received professional investment advice—activities traditionally associated with higher levels of preparation and confidence. Those who had a retirement account were also more likely to have set higher savings goals, and to have found retirement to be about the same or better than expected.”
Retiree confidence in having a financially secure retirement, which historically tends to exceed worker confidence levels, has also increased, with 28% very confident (up from 18% in 2013) and 17% not at all confident (statistically unchanged from 14% in 2013).
There is evidence that workers acknowledge their savings shortfalls for retirement. One-third (32%) say they need to save up to 20% of their total household income in order to live comfortably in retirement. However, many report the need to save an unmanageable level of income for retirement. Twenty-two percent say they think they need to save between 20% and 29% of their income, and another 22% indicate they need to save 30% or more. Those without a retirement plan (whether an IRA, defined contribution, or defined benefit) on a household level are more likely than those with a plan to think they need to save at least 50% of their income (23% vs. 8%).
Greg Burrows, senior vice president of retirement and investor services at The Principal Financial Group, an underwriter of the study, tells PLANADVISER there is an increasing trend in the study of the amount workers think they need to save. He attributes this, in part, to the lack of use of calculators to help them gain a reasonable understanding about how much to save. The study shows only four in 10 use them and those who use them tend to be more confident in their ability to save for a comfortable retirement.
The RCS found only 44% of workers report they and/or their spouse have tried to calculate how much money they will need to have saved by the time they retire so that they can live comfortably in retirement, a level that has held relatively consistent over the past decade. Workers who have done a retirement savings needs calculation (compared with those who have not) tend to have higher levels of savings.
Having a plan available to them also affects whether workers seek professional advice, Burrows notes. Among those who do have a plan, about 35% use professional advice, compared to about 5% among those who do not have a plan. “It’s an important component to plan sponsors doing the right thing for participants,” he says.
Roughly one in five workers and 25% of retirees report they have obtained investment advice from a professional financial adviser who was paid through fees or commissions, according to the RCS. Twenty-seven percent of workers who obtained advice say they followed all of it, but more only followed most (36%) or some (29%). Retirees are more likely to report following all of the advice (38%). Among those who did not follow all the advice, one-third said they didn’t trust it, and others had their own ideas or goals or perceived they couldn’t afford to do what they were told to do.
Amid federal budgetary concerns and questions about the efficacy of the tax preferences currently provided to workplace retirement savings plans, some in Congress and elsewhere have proposed changing those preferences. Respondents to the 2014 RCS were asked how they would respond if the law were changed such that they could no longer contribute to employer-sponsored retirement savings plans on a pretax basis, but if instead contributions and subsequent earnings on those contributions were not subjected to additional taxes at withdrawal—basically transforming the current 401(k) structure to a Roth 401(k) approach. Two-thirds (65%) of plan participants said they would continue to contribute at their current rate, while 16% reported they would increase their contribution to the plan. Just 10% indicated they would reduce the amount they contribute to the plan, and 5% percent said they would stop contributing altogether. While the sample size is extremely small, one in 10 of those with income less than $35,000 indicated an intention to stop contributing under these circumstances.
However, Burrows says it is not clear how participants will actually react if such legislation is passed, regardless of the survey response. In The Principal’s own client base, about half of clients offer a Roth feature in their defined contribution plans, but only 5% of participants utilize this.
The bottom line is employees are more confident in being able to save for a comfortable retirement if they have a plan available to them. So, Burrows suggests, if an employer doesn’t have a plan, it needs to implement one, and if an employer does have one, it needs to use packaged automation features—automatic enrollment at a 6% default deferral, 1% deferral increases per year and default into an asset allocation fund. “Use plan design to drive optimum savings behaviors,” he concludes.
Results of the 24th annual RCS, conducted by the Employee Benefit Research Institute (EBRI) and Greenwald & Associates, Inc. are published in the March 2014 EBRI Issue Brief, available online at www.ebri.org. Several fact sheets, detailing various aspects of the survey’s findings, are also available. The survey was underwritten by nearly two dozen organizations.