Youth is wasted on the young, George Bernard Shaw quipped, and that apparently applies to retirement saving. Not surprisingly, some nine out of 10 plan participants feel at least some regret about saving for their future, according to a new survey from by American Century Investments.
The study looked at participant thoughts and perspectives on retirement savings. The survey focused on employee regrets about saving, the value they place on their retirement plans and their reliance on employers’ influence and guidance.
“Not saving for retirement was cited as the most common personal regret—more than not being a better person or having better personal relationships,” American Century Investments Vice President of Client Marketing Diane Gallagher said in a statement. “People recognize the importance of saving but lack that general direction or push to get started.”
Key study findings include:
- Regret continues to be the prevailing sentiment that employees express about their retirement savings habits.
- Retirement plans continue to be highly regarded by participants.
- Reliance on employers to help participants start early and save more continues to be a theme among participants.
Regret
Pre-retirees (age 55 to 65) who report having a great deal of regret has risen five percent in the past two years, according to the survey, and More than four out of 10 see retirement as their biggest financial goal.
Other survey insights include:
- Participants point to the first five years of their working lives as the period for which they have the most regret.
- Common barriers to saving remained consistent with previous surveys and included not earning enough, having to pay off debts and incurring unexpected expenses.
- More than 90 percent said it would be “at least somewhat important to tell their younger selves to save more.”
- However, about 75 percent said their early career self would only be “somewhat or very likely” to listen to that advice.
- Participants gave themselves a “C” when asked to grade the job they did in putting money away for retirement, given their resources and circumstances.
“We continue to see this disconnect in people knowing what they ‘should do’ against what they actually do with respect to saving. Although participants recognize that responsibility and gravity, they still struggle with overcoming inertia to move forward,” Gallagher said.
Employee Benefits
The influence of employers on participants saving for retirement cannot be overstated, according to the study:
- Despite giving themselves a “C” on saving for retirement, participants awarded a “B-” grade on the help offered by their employers.
- Nearly half – four out of 10 – of participants credit their employer with playing a critical role in getting them to save for retirement.
- When offered the option of receiving either a 100 percent match on 3 percent of their retirement plan contributions or a 3 percent higher salary, 77 percent of pre-retirees chose the match over the higher salary; 75% of participants ages 25-54 would take the match.
- When asked the same question substituting 6 percent for 3 percent, 78 percent of pre-retirees and 69 percent of younger participants chose the match.
- Eight out of 10 believe the defined contribution plan is one of the most important benefits.
- Two out of three participants feel positive about a company that offers auto-enrollment, automatic increases and target-date funds.
- When asked about state-run retirement plans where employers automatically enroll employees if they do not offer a plan of their own, the vast majority – 57 percent of pre-retirees and 58 percent of younger participants – would prefer an employer-run plan.
“The idea that employees would accept a higher match over higher salary may have implications for plan sponsors and their consultants in structuring compensation and benefit programs,” Gallagher said. “It is certainly a perspective that is worth examining within a particular organization.’
Reliance on employer
Automatic plan features are increasingly important to participants, according to the research.
- Eight out of 10 employees want at least a “slight nudge” from their employers in helping to save and invest for retirement.
- One out of 10 wants”a kick in the pants” to encourage them to save more.
- Participants overwhelmingly support automatic features.
- When asked if the company they worked for should offer automatic features, the clear majority agree.
- Some 75 percent believe automatic enrollment at six percent is something the company should do.
- More than 60 percent feel automatic enrollment should be implemented retroactively.
- Eight in 10 show at least some interest in a regular, incremental automatic increase.
- The same number (80 percent) support plan investment re-enrollment into target-date solutions.
“Participants are really looking to employers to establish defaults around saving rates and investments to help them get started,” Gallagher said.
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.
