Data & Research June 27, 2011

Stuck at a Crossroads

In a recent white paper, J.P. Morgan explains that participants want income replacement projections, but don’t know how to translate their 401(k) savings into retirement income. 
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J.P. Morgan survey data found that 86% of respondents said they want to know how much of their pre-retirement salary they can replace, yet almost one quarter (22%) aren’t sure what they are on track to receive after they stop working.  Overall, only 40% of respondents feel comfortable that they will be able to reach their financial goals in retirement.   

Americans are also underestimating how much money they will need in retirement, according to the data. Among respondents who had a target retirement income replacement level in mind, nearly half (45%) thought they would need less than 75% of their pre-retirement salary level.  However, J.P. Morgan research shows that a minimum guideline for successful retirement income is a replacement ratio of at least 70% or more.

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“On the positive side, some 91% of participants agreed that they were personally responsible for their own financial futures,” says Diane Gallagher, vice president, product development, J.P. Morgan Retirement Plan Services. “However, there’s still a significant gap between acknowledging responsibility and acting upon it.”

The paper, titled “Searching for Certainty,” also discusses how two-thirds of respondents admitted that they don’t know how much they should be saving for retirement and that nearly half of respondents are scared that they will outlive their retirement savings. Of the participants who said they would need 75%-100% of their pre-retirement salary after they stop working, less than a third had enough savings to provide this income.

Largely due to the lasting effects of the recession, most Americans have pushed aside retirement savings priorities, which came in a distant second to paying monthly bills in the survey. This is despite the fact that 401(k)s are the only or the primary source of retirement savings for two-thirds of Americans.   

Interestingly, higher income employees are facing the most challenging shortfalls in closing the retirement income gap, which highlights the significant need for supplemental savings channels for this demographic.

Employees earning $165,000 annually cannot replace their salary on their 401(k) contributions alone, even with making catch-up contributions. As a result, the availability of a non-qualified plan is increasingly important with the full complement of savings plans working together.  According to J.P. Morgan’s research, however, 46% of non-qualified plan participants do not currently contribute to their primary defined contribution plan.

J.P. Morgan used data from an online survey of 1,014 respondents conducted from July 12 - 23, 2010. A copy of the J.P. Morgan white paper “Searching for Certainty” is available here.   

IMHO June 27, 2011

IMHO: Graduation “Exhortations”

This past week, my son graduated from high school.   
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It was a big deal for our family, as any graduation would be.  However, this was in some ways a particularly special night, since my son is our youngest, and thus—well, it will be our last high school graduation (until grandchildren come along, anyway).  The weather chased us inside for the ceremony, which also afforded us one more time to walk the halls that my kids had gotten so familiar with (and which still seem like a maze to me). 

Mostly, it was an occasion to look back one more time before turning our attention to the future.  For me, it was a chance to look back and try to bring to mind my own high school graduation—and all the things that have happened in my life since then.  

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So, for my son—and all the other graduates out there—here are some things I wish I had known when I was your age:

If you don’t speak up, people will assume you’re happy with the way things are.

If you don’t love yourself, nobody else will.

If you wouldn’t want your mother to learn about it, don’t do it.

Paying the minimum due on your credit cards is dumb.

High school ISN’T the best time in your life.

Never miss a chance to tell someone “thank you.”

You’ll fall in love more than once—or at least think you have.

Never assume that your employer (or your boss) is looking out for your best interests.

You can be liked AND respected.

Sometimes the questions are complicated and the answers—aren’t.

Hug your parents—often.

Know at least a little about sports and the weather.

“What do you think?” is a great response when you don’t know the answer.

The hardest thing to do is quit while you’re ahead.

The second hardest thing to do is to keep your mouth shut.

Never assume that “senior management” knows what they’re doing.

“Have you been working out?” is the best thing you can say to someone.  The second best is, “Have you lost weight?”

People notice people who don’t swear.

Breaking up IS hard to do.

Listen.

Smile.

Read.

That 401(k) match is not “free” money—but it doesn’t cost you anything.

Start saving for retirement—now!

 

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