When it comes to saving for retirement, the desire for 401(k) auto-enrollment is strong, reflecting a “do it for me” attitude.
A survey by American Century Investments reveals that most people appreciate at least a slight push from their employers to save, though employers underestimate this preference. Eighty percent of respondents believe their savings would be higher if their employers were more proactive. The survey also indicates that nearly 70% of participants favor automatic enrollment at a six percent starting contribution rate, higher than the less than four percent average, with over half supporting this for all employees, not just new hires.
Additionally, when given a choice between two job offers (one had an employer-sponsored retirement plan, and one had a higher salary), pre-retirees are five times more likely to choose the retirement plan offer.
The third annual study, which consisted of responses from 2,031 defined contribution plan participants (grouped by ages 55-65 and 25-54), looked at their perspectives on how much they rely on the guidance of their employers, especially with regard to saving sufficiently and consistently for retirement, according to American Century Investments Vice President, Defined Contribution Investment Only (DCIO) Practice Management Diane Gallagher.
“Retirement plan participants have a great deal of regret about their past saving behavior,” Gallagher said. “Plan participants aren’t expecting to be rich; they are really aspiring for independence, rather than affluence, in retirement. Also, they realize it’s important to save through their defined contribution plan, but they look to their employers to help them establish positive saving and investing patterns.”
Regret
According to the study, nearly all retirement plan participants—nine in 10—said they have at least some regret about when they started saving for retirement. Some 75 percent said they could have saved at least a little more in the past. More than half of plan participants across all age groups point to the first five years of working as the time in which they could have saved much more than they did.
A majority of participants agree that not saving enough for retirement was one of the biggest mistakes of their lives. “In fact, not saving enough for retirement was mentioned more frequently than not doing better with personal relationships or careers,” Gallagher said. Nearly eight out of 10 participants either strongly agreed or somewhat agreed that they “wish that I could have talked to the young me and told myself to save more than I did.”
However, despite expressing regret about not saving earlier and enough, half of pre-retirees and 60 percent of 25- to 54-year olds admit they are still saving less than they should. Also, three out of four plan sponsors report that their participants save less than they should, with one out of three saying participants are saving significantly less than they should.
Expectations
More than 70 percent of study participants stated that retirement is one of their biggest financial goals, if not the top goal. By an overwhelming margin, participants felt it would be far worse to have too little in retirement than to miss out on something today. Most participants—nine out of 10 pre-retirees and roughly seven out of 10 younger study participants—expect their standard of living to be the same or worse than it is today. “We found that participants are willing to make adjustments to their current lifestyle, rather than suffer the consequences later,” Gallagher said. “We believe their goals are more about independence than about an extravagant lifestyle.”
Employer’s Role
Participants are very open to automatic contribution rate increases; nearly 80 percent would be interested in these.
Overwhelmingly, participants also supporting help from their employers on the investing front. Some 68 percent of pre-retirees and more than 70 percent of participants ages 25-54 said employers should implement a plan investment re-enrollment into target-date funds. (In a plan investment re-enrollment, participants’ current account balances and future contributions are invested in the plan’s default investment—commonly target date series—unless the participant opts out.)
Few participants believe their employers have done everything possible to help them prepare for retirement. Only 14 percent of the broader group and 11 percent of pre-retirees feel their employers did everything completely to help encourage saving.
“Even though plan sponsors don’t think plan participants want them to intervene, in reality, they are looking for a higher level of support,” Gallagher said. “Although participants are technically able to drive, they are willing to be attentive passengers with their plan sponsors steering the car.”
See Also:
- Here’s Where Plan Sponsors and Participants are Not on Same Page
- 3 Things Participants Want More of from 401(k)s
- All Auto Everything—Shlomo Benartzi on 401ks in the Digital Age
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
