When it comes to 401k participant savings rates, engagement matters—a lot.
Engaged participant savings rates are a remarkable 56% higher than rates for unengaged participants, according to Empower’s just-released second annual research study, Empowering America’s Financial Journey: How People Save, Invest and Get Advice.
48% of unengaged participants are not making full use of the employer match vs. only 22% of those who are engaged
Empower research
The study, which analyzes the behavior of approximately 4.3 million active (primarily corporate) defined contribution participants to better understand their savings habits and levels of involvement with retirement planning, found engaged participants are also more likely to take full advantage of their plan’s employer match.
To wit, 48% of unengaged participants are not making full use of the employer match vs. only 22% of those who are engaged.
People who are engaged and leverage educational content; seek out advice or guidance; and/or aggregate or consolidate accounts have higher savings rates than participants who are not engaged, the research found.
Participants aggregating accounts—those who link multiple financial accounts in one place to create a consolidated view—have savings rates approaching 11%, almost double the savings rate of unengaged participants. And 44% of survey respondents said they feel more confident if they have a full picture of their financial situation and are able to see their financial account balances, debt and assets in one place.
Most Americans confident in their retirement
From a wider perspective, the research from Denver-based recordkeeper Empower found that while rising prices and inflation are certainly affecting American workers, Americans remain resilient despite the economic environment—and more than 63% of Americans said they are confident they are financially on track for retirement.
“When the economy is experiencing a downturn, American workers need guidance and support to help deter them from making financial decisions that may negatively affect them down the road,” said Edmund F. Murphy III, president and CEO, Empower. “Despite the challenges our country is facing, it’s encouraging to see that most savers haven’t changed their investment approach and are still focused on saving and planning for their future.”
More from the findings:
• Changing demographics and the rise of Gen Z are reshaping the DC landscape. Gen Zers as a percent of Empower active participants more than doubled between 1Q20 and 3Q22 (4.0% to 8.9%). This trend will accelerate as Gen Zers are expected to account for 30% of the workforce by 2030.
• Advisors make a difference and help drive better outcomes. People who use an advisor compared to those who do not are more likely to feel more confident they are saving enough in their 401k plan and in making investment decisions. They also consider themselves to have a higher level of knowledge about investing, and are more confident about their retirement readiness.
• The number of participants taking out loans increased by 13% over the past 12 months and hardship withdrawals jumped by 24%. More than a quarter of surveyed respondents say they are very or somewhat likely to take a loan or hardship withdrawal in the next six months.
Focus on the long-term
“Through this year’s study, we found that nearly half of Americans have cut back on daily expenses, created a budget or cut back on entertainment, and one in five Baby Boomers and Gen Xers postponed retirement,” said Luis Fleites, director of Thought Leadership for Empower. “I think this illustrates that while we are shifting our focus on short-term spending and planning for now, most savers are still trying to remain long-term focused.”
The objective of this analysis was to understand how participants behave and what drives that behavior and, as a result, what insights and learnings can help American workers on their journey to a secure retirement. Download the study to learn more.
Empower administers approximately $1.2 trillion in assets for more than 17 million retirement plan participants and is the nation’s second-largest retirement plan recordkeeper by total participants.
SEE ALSO:
• Recession Fears Not Stopping Women from Maintaining (or Increasing) 401k Contributions
• Americans Point to Inflation for Lack of Retirement Savings
• 5 Ways Inflation is Changing Retirement Planning
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
