Data & Research August 1, 2013

Pre-Retirees Expressing Retirement Confidence

One-third (33%) of those polled, who are already in retirement, confirmed they are experiencing a lower standard of living than during their working years, based on their monthly income.
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However, their pre-retiree counterparts were confident about the future—only 8% expect a lower standard of living when they reach retirement, according to ING’s Retirement Income Redefined study. A majority (68%) believe they will have enough to maintain the same or more comfortable lifestyle.

Yet, more than one-third (37%) believe they are somewhat likely, likely or highly likely to eventually run out of their retirement savings. Among those without a financial adviser, the proportion worried about this is 41%.More than one-third (36%) believe $500,000 or less is enough to provide them with a comfortable level of retirement income, or they didn’t know how much they would need—fewer than those who believe more than $1 million will be required (64%).

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Eighty percent of respondents acknowledged they would be willing to give up some of their spending money today in turn for some guaranteed income at a later point in life.

Working with a financial adviser greatly increased the odds that a person had calculated what their current savings would translate into in terms of a retirement income stream. Nearly nine in ten (87%) of those who worked with an adviser had made this calculation, compared to less than six in ten (59%) of those who did not work with a financial adviser.

For the most past, respondents were evenly split when it came to the importance of different retirement savings strategies. The top two priorities on people’s minds include growing savings (19%) and automatically converting savings into a guaranteed stream of income (18%). The latter strategy was most important among those with children younger than 18 in the household (24% compared with 16% overall) and those who did not work with a financial adviser (20% compared with 12% overall).

Separately, the research found a majority (70%) of those who are married or in a committed relationship had discussed the need for guaranteed income with their partners.

More information about the study is here.

Data & Research August 1, 2013

Loan Takers Save Less

An analysis from New York Life Retirement Plan Services shows 401(k) plan participants who take out loans have lower savings rates.
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New York Life’s first annual “State of the Retirement Industry” report says participants who take loans are more likely to save at a lower contribution rate than their counterparts, and are not likely to repay the loan when leaving their employer. Research across New York Life’s defined contribution platform found the average contribution rate for a participant who takes out a loan from their 401(k) plan is 5.63%, compared with 7.23% for participants without loans.

Additionally, the analysis found more than two-thirds of participants with an outstanding loan balance who leave their employers will take a cash distribution from their retirement plan rather than paying back the loan. Preventing this plan “leakage” is very important in helping workers successfully save for retirement, the report notes.

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“Americans are not saving enough for retirement and compounding this problem is the fact that loans can drain precious retirement dollars,” said Rachel Rice, managing director of marketing and product development at New York Life Retirement Plan Services. “As an industry, we need to reverse the ATM mentality that has developed around 401(k) savings by encouraging sponsors to rethink loans from a plan design perspective, and enabling participants to differentiate between everyday, emergency and retirement savings.”

Loans against 401(k) balances have often been offered as an attempt to increase plan participation and allow participants access to their money during a financial hardship, but New York Life’s research indicates average participation rates for plans without loans are only 9.6% lower than those plans with loans (67% vs. 76%). While eliminating loans entirely from 401(k) plans may not be practical, New York Life asserts the number and size of loans available to participants should be limited in scope.

The report also found that average American worker in a New York Life 401(k) plan is 43 years old, earns $68,700 annually, contributes 6.25% of salary into the 401(k) and has an account balance of $55,270.

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