A recent survey conducted by J.P. Morgan Asset Management asked a large number of 401(k) plan participants a variety of questions to better gauge their overall knowledge, behavior and attitudes in relation to saving and investing for retirement. One of the key findings from the survey is that even though many plan sponsors have made an effort to educate their participants about why and how to financially prepare for retirement, more work apparently still needs to be done. Indeed, employees seem to generally understand the importance of preparing for their financial future and 75 percent of surveyed 401(k) plan participants even said that they think they should be setting aside at least 10 percent of their income each year in order to be on track for a comfortable and secure retirement.
However, not even a quarter (24 percent) of these respondents said that they are actually hitting that savings target, and 68 percent of surveyed participants admitted that their plan contribution rate last year was below where it should have been. Similarly, 81 percent of respondents said that they are interested in doing some sort of financial planning for retirement but not even half (45 percent) reported that they currently have a specific dollar amount in mind for how much money they will need to set aside to ensure their desired old-age lifestyle. Moreover, just 38 percent of surveyed participants reported that they are certain of how much money needs to be put into their 401(k) account each year for them to achieve their retirement goals, and only about a third (34 percent) of respondents said that they have a good idea of what size nest egg they will have likely amassed in their 401(k) by the time they retire.
Unsurprisingly, only three in 10 surveyed participants reported that they are “very” or “extremely” confident in their knowledge of how much monthly income their current saving rate will be able to provide them with in retirement. Despite all of the above-mentioned responses, 59 percent of surveyed 401(k) participants think that they will have to remain employed beyond their desired retirement age, down markedly from 70 percent in the 2012 survey. At the same time, 44 percent of respondents anticipate that their total savings will be able to last throughout the duration of retirement, up from 31 percent in 2012. Altogether this survey’s findings suggest that many Americans may be a bit overconfident when it comes to their current level of retirement readiness.
Lots of employers recognize this potential retirement crisis and are already responding by taking steps to improve the likelihood that their workers’ will be financially secure in old age. One of the most popular techniques is to incorporate automatic enrollment into 401(k) plan design so that employees begin contributing to a retirement saving account as soon as possible. Fortunately, participants seem to respond well to such initiatives because three-quarters of surveyed workers said that they are “in favor of or at least neutral” toward automatic enrollment. Simply participating in a 401(k), though, is not always enough to ensure an ideal retirement outcome, and the survey found that many participants are not especially engaged when it comes to account maintenance. For instance:
- Twenty-eight percent of participant respondents have never rebalanced their 401(k) account.
- Thirty-one percent have never made a change to their initial choice of investment options.
- Eighteen percent have never increased their contribution amount.
Those issues can be addressed with a combination of Target Date Funds (TDFs), periodic re-enrollment efforts, and the automatic escalation of plan contributions. Even more encouraging are the general responses from participants who have experience with such initiatives:
- Among those automatically enrolled in their plans, less than 1 percent opted out, nearly all are satisfied (96%), and almost a third (31%) say they would not have enrolled otherwise.
- Among those whose contribution amounts are/were automatically increased by 1% to 2% each year, almost all are satisfied (97%), and 15% say they were unlikely to have escalated their contributions if not for this automatic feature.
- Among those who went through a re-enrollment, 73% allowed their assets to be moved to a TDF, and 99% of those whose funds were moved are satisfied.
Sources: J.P. Morgan Asset ManagementPost author: Charles Couch