Some retirement plan participants play guessing games when calculating their retirement savings goals.
A Cogent Syndicated report from Escalent found 40% of participants admit to judging their retirement savings off the top of their head, while 30% utilize online calculators, detailed plans with financial advisors (25%), and do-it-yourself customized spreadsheets (22%).
The survey fielded responses from 4,000 defined contribution (DC) plan participants who actively contribute and/or have at least $5,000 in a former employer’s DC plan.
When asked for best estimates, the overall mean retirement savings goal was $946,000. Younger investors were likelier to guess on the lower end at $498,000, compared to $1.2 million for Second Wave Boomers (classified as younger Baby Boomers born between 1955 and 1964, and who lead different lifestyles than their older peers). In fact, Gen Z workers were likelier to estimate low across all retirement accounts, including employer-sponsored retirement plans (ESRPs), individual retirement accounts (IRAs), brokerage accounts, and other vehicles.
In its research, Escalent also finds that one in four participants are extremely confident they’ll meet their retirement savings goals (33%), while 10% of Generation X workers say they’re sure they’ll meet their retirement goals. In comparison, roughly half of First and Second Wave Boomers believe the same.
As a result, Linda York, senior vice president in the Cogent Syndicated division at Escalent, notes that product providers, insurers, and plan providers need to reframe the conversation to how participants can benefit from using recommended tools and strategies.
“Many participants doubt their future ability to convert their retirement savings into real-life income, revealing an untapped market for retirement income solutions,” she said “It can be challenging for providers to explain complex products and keep participants’ objectives front and center.
“Despite the industry’s efforts to date, participants aren’t able to grasp how much money is required to live comfortably in retirement until they get really close to making that important transition,” added Sonia Davis, senior product director at Escalent and lead author of the report, in a statement. “We consistently hear retirees advocating that firms encourage younger employees to contribute and instill how much is needed to have a comfortable lifestyle in retirement. Firms can take action by enhancing financial wellness counseling and providing fresh and engaging content around retirement readiness.”
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
