Thirty-eight percent of participants surveyed called themselves active investors—noting that they started saving early, have confidence about their current financial situation and actively manage their investments or the managers that invest for them. Sixty-two percent of participants consider themselves accidental investors, unenthusiastic about saving and investing, insecure about their current financial situation and lacking confidence in any investment ability.
Among both groups, TDF usage is at an all-time high: 39% of actives said they use TDFs (up from 29% in 2009) and 27% of accidentals said they use them (up from 21% in 2009). In addition, 87% of actives and 72% of accidentals said they are equally or more satisfied with their TDFs than with other investments in their plans.
Active investors feel comfortable with their investment choices and their retirement in general with TDF’s asset-allocation options. Accidental investors like the simplicity and ease of TDFs.
Joe Healy, head of AllianceBernstein’s Defined Contribution Client Experience, commented: “It’s striking that despite the almost polar opposite behavioral differences between active and accidental investors, both groups give TDFs high marks. It certainly suggests that sponsors can stave off behavioral biases and encourage savings by defaulting people into easy-to-understand investment solutions like TDFs that also provide sophisticated asset-allocation features to satisfy savvy investors.”
The research also shows that despite increases in the utilization and appeal of TDFs, participants continue to have striking misconceptions about them. While 67% of TDF users understand the asset-allocation strategy (or glide path) associated with this type of investment, 34% said they believe their TDF account balance is guaranteed never to go down. Thirty-seven percent of participants surveyed said they believe a TDF guarantees that their income needs will be met in retirement.
“While participants continue to have misconceptions about certain TDF features, our research suggests that it’s unclear whether more education is the solution. The reality is that accidental investors often don’t want to understand how investments work—they just want to know they do work,” Healy said.
Many participants also show a strong desire for lifetime income solutions in their TDFs. Two-thirds (67%) of participants said the single most important feature they want from their DC plan is a steady income stream in retirement. Nearly 80% of current TDF users found a TDF with secure income stream features appealing—as did 53% of non-TDF users and 47% of non-plan participants.
AllianceBernstein’s plan participant survey was conducted online in February 2012 with 1,002 respondents who were full-time employees at least 18 years of age and working for companies that offered DC plans. A report of survey findings can be found at www.abdc.com.