Stepped Up 401(k) Contributions Come Amid Optimism

Contributions to 401(k) plans increased in the last year, according to the latest Principal Financial Well-Being Index, as some investors' spirits seem to be lifting.

A Principal news release said 85% of workers eligible for defined contribution retirement plans reported that they are participating, up from 81% of workers a year ago. When asked what changes they have made, if any, to their 401(k) account due to current economic conditions, 18% reported that they have increased their contributions, compared with 13% in the fourth quarter of 2009.

Meanwhile, 45% of workers and 43% of retirees are either very concerned or extremely concerned about the future of Social Security. While a third of retirees (32%) said Social Security is their primary source of income, nearly half (48%) said it is a secondary source of income. Significantly, 69% of those working today expect Social Security to be a secondary source of retirement income.

When asked how they would manage if Social Security were to fail, 46% of workers said they would remain in the workforce longer, up significantly from 40%

“With mounting worries about Social Security, it appears that fewer workers are staking their future on the system and are considering alternatives, which for many means putting more money in a defined contribution plan,” said Luke Vandermillen, vice president of retirement and investor services at The Principal, in the news release. “On a positive note, it may be a sign the economy is improving that some workers are comfortable increasing their 401(k) contributions instead of dipping into retirement savings to cover daily expenses.”

With 2011 on the horizon, many Americans are feeling more optimistic, according to Principal. Forty percent of workers and 39% of retirees think the economy will improve to some degree in the next year, both significant increases from third quarter 2010. The percentage of workers who are extremely happy with their current financial well-being is up significantly to 31% from 19% from last quarter.

This survey was conducted online within the United States by Harris Interactive October 20-28, 2010, among 1,159 employees and 528 retirees.