Financial Planning, Retirement

Workers Value Their Employer-Provided 401(k) Plans

5/27/20 8:00 AM

Six in ten Americans believe they are building a large enough retirement nest egg, according to Transamerica’s latest annual retirement survey, and 70 percent said that they are at least “somewhat confident” they will be able to achieve a comfortable lifestyle in old age. This poll was conducted in April when the lockdowns were in full effect, and a handful of respondents acknowledged that the resulting economic damage had already dented their long-term financial optimism. However, both of the figures cited above are still improvements from last year’s survey, therefore providing another sign that the COVID-19 crisis has yet to materially hurt overall retirement confidence. Although encouraging, the figures also imply that many Americans even before the coronavirus were having concerns about how financially well-off they will be in old age.

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Thirty-nine percent of surveyed workers, for instance, said that they are worried their Social Security benefits will be reduced or cease to exist at some point in the future, and 34 percent reported concerns about potential health declines that will require long-term care. The biggest fear for respondents, though, is outliving their savings and investments (40 percent). That is not too surprising since surveyed workers anticipate living to a median age of 90, and nearly one in seven respondents expect to become centenarians. Even the more conservative estimates for life expectancy would still imply decades of retirement that need to be funded, but the typical (median) worker estimates needing to have saved only around $500,000 prior to retirement in order to achieve old-age financial security. On the bright side, roughly one in three respondents believe that they will need at least $1 million for old-age well-being, an improvement from prior surveys, and more Americans appear to finally be taking the right steps to help ensure a comfortable lifestyle in retirement. For example, most surveyed workers began saving for retirement by their 26th birthday, and more than three-quarters of respondents with access to an employer-sponsored savings plan said that they are currently participating.

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The latter can be especially beneficial because 401(k)s and similar plans generally provide participants with numerous tax advantages, and many employers will often augment a worker’s rate of saving through matching contributions. Further, 85 percent of respondents described their company-sponsored retirement plan as being “very” or “somewhat” important, and 80 percent said the savings programs offered by prospective employers play a significant role in their job search decision. More than six in ten workers even said that they would be willing to switch employers for a nearly identical job with a similar company that offered access to a better retirement plan. This “flight risk” was found to be the greatest among Millennial respondents, which suggests that 401(k) plans can be especially useful when trying to recruit young talent. Moreover, in America it is common to receive an undergraduate degree around 21 to 23 years of age, meaning that under current law such individuals can remain on their parents’ health insurance policy for at least a few years after graduation. As a result, financial incentives like a 401(k) plan and accompanying matching contributions could be a lot more valuable to recent university grads than healthcare benefits.

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Sources: Transamerica Center for Retirement Studies

Post author: Charles Couch

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