How are 401(k) participants reacting to all that’s happening, and how does it compare with the complexities of 2020?
John Hancock Retirement is out with its “State of the participant 2021,” a benchmark of where workers are with retirement readiness, loans, projections, and much more.
It found that DC plans continued to perform what the firm says is their critical role in preparing workers for retirement in 2020. Given the widespread impact of the pandemic on personal finances, “the dip in retirement readiness, from 49.6% to 47.9%, doesn’t seem too alarming, although it’s certainly worth monitoring closely.”
Digging deeper, most participants below age 50, along with those earning between $50,000 and $150,000 per year, remain on track for a secure retirement.
Although only 0.15% of John Hancock Retirement participants took COVID-related loans, it nevertheless drew some conclusions, as the average loan amount was $16,699.
A larger percentage, 3.4%, tapped their DC plan savings through a CRD, and the average taken was $20,768. As transactions of this size can significantly hurt retirement readiness, it notes, it’s important to understand the scope of the issue, even if it’s only having an impact on a relatively small share of the population.
Auto features
Digital capabilities have made automatic enrollment easier and more efficient than ever, the report adds; the auto-increase feature is indispensable in helping shape a “save more” attitude, and raising the default contribution rate can help give more new participants a needed nudge.
Auto-enrollment and auto increase are among the most successful strategies for boosting contribution rates and retirement readiness. Plans that combined these auto features enjoyed an eight percentage-point advantage (19% in actual terms) in retirement readiness over plans with no auto features at all.
Personalized goal-oriented saving, investing, and financial management: Participants are motivated by personalized retirement projections.
For example, of those under 30 years who completed the personalized retirement planner on the John Hancock Retirement platform, 23.4% increased their contributions by an average of 4.8 percentage points. For those Age 50–59 who completed the planner, 22% increased their contributions by an average of 5.1 percentage points.
Support for a TDF-plus strategy
Based on subsequent analysis of all TDF investors’ status, participants who’ve blended these and other types of funds are on track to replace more of their preretirement income (89.6%) than those holding TDFs only (84.8%).
In addition, a larger portion of TDF-plus investors is retirement ready.
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.
