Retirement Savings and Plans Don’t Always Align

Nearly half (48%) of retirement plan participants are either “confident” or “very confident” about achieving a secure retirement by the date they plan to leave the workforce. Yet, 55% of them have saved less than $100,000 toward retirement. The lack of saving doesn’t seem to have dampened their enthusiasm about retiring early, though: 36% expect to retire before age 65. It’s true, those could be among the small number of total workers who have saved at least $250,000 for retirement; perhaps the 22% who expect to work until age 70 (or more) are among those whose savings and confidence about retirement security are relatively low.

Many of the participants who were asked recently reported that they were saving at — surprise! — the default deferral rate their plan offers. With the typical default rate set low, this tendency toward inertia translates into a situation where a significant number of people (41%) say they are saving 5% or less of their pay toward retirement. That number has increased since 2018, when 34% were saving 5% or less. For 2019, just 21% of participants were saving more than 10% of their pay, and 33% fell between 5% and 10%.

Still, a solid 43% of participants report taking one very positive action in their retirement strategy during the last year: they increased their deferral rate. Seventeen percent said they changed their asset allocation strategy during the year, 16% rebalanced their retirement account, and 16% performed a retirement income calculation.

The most-preferred communication? One on one

When learning about retirement, participants seem to prefer one-on-one communication. Asked how they would prefer to receive information on financial wellness, 31% said they would like to meet with an advisor for 30 minutes. The next most popular option, reading a short brochure with 3-5 actionable steps, was selected by 18% of participants. Fifteen percent would rather browse an interactive, online library, and 14% said they would like to read a newsletter via email.

Seeking counsel from a financial advisor may result in greater retirement savings. Thirty-six percent of participants whose retirement savings is greater than $250,000 use a financial advisor, compared to 10% of those with less than $50,000 in retirement savings.

“Now vs. later” results encouraging

Participants seem to appreciate long-term reward compared to smaller, short-term gains. They were asked whether they would choose a 6% matching contribution that vested after 5 years, or a 3% immediate match. Sixty-one percent of respondents said they would take the longer-term match. Similar results came when participants were asked if they would prefer a $2,500 employer contribution that required them to contribute some of their own money to the plan, or a $1,500 employer contribution that had no such employee contribution requirement. Just over half, 53%, said they would take the larger contribution.

To read more results from the 2019 Participant Survey from PlanSponsor, check out https://tinyurl.com/2019PlanSponsor.

For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.

©2020 Kmotion, Inc.