It’s a lack of retirement-related education, not resources, that cause many with less to forego saving.
That’s the surprising take from a new study from MassMutual.
While participation in 401k plans is high across the board for middle-income workers, the lower their income, the less likely they are to reap the full advantages from their employer’s retirement savings plan, the company notes.
“Nearly nine in 10 middle-income Americans participate in employer-sponsored retirement plans,” Tom Foster, national spokesperson for MassMutual’s Workplace Solutions, said in a statement. “However, MassMutual’s research shows that savers with higher incomes are far more likely to contribute a higher percentage of their income and take full advantage of matching contributions.”
Overall, 84 percent of middle-income Americans whose employer matches contributions to a 401k save enough to receive the full match.
However, annual household incomes, as well as gender, are determining factors in the likelihood of the saver contributing enough to obtain the full match.
Six in 10 study respondents say their employer matches retirement plan contributions, with little variation between income levels. The matches range from 2 percent of an employee’s salary to 7 percent or more, with 5 percent matches being the most prevalent (21 percent), the study finds.
Lower-income workers are twice as likely as higher-income workers to skip saving in their employer’s retirement plan, according to the study.
Of those who do not save, income is again a big determinant. Seven in 10 respondents with less than $45,000 in household income said they cannot afford to save for retirement compared to 23 percent of those earning $75,000 or more.
Other reasons for passing on savings were lack of a compelling employer match or no match (23 percent), a preference to manage retirement savings outside an employer’s plan (14 percent), and wanting to save in an investment vehicle that provided greater accessibility to the money (14 percent).
Higher-income savers were also more likely to contribute a higher percentage of their income to a retirement savings plan than those with lesser incomes, the study shows.
Overall, nearly half (43 percent) of study respondents say they contribute at least 5 percent and as much as 9 percent of their income. But those with incomes of $45,000 or more were three times more likely to save 15 percent or more of their income compared to those earning less than $45,000.
Meanwhile, only one in four employers offer financial education or planning assistance, according to the study, with the most likely education being retirement planning.
Three in 10 middle-income workers say they wish their employer offered more retirement planning and one in five would like help with their retirement investments.
“Employers and financial advisors need to help educate workers—especially those who may see savings as unaffordable–to find dollars and then make the most of them,” Foster said.