The latest installment of ongoing research finds retirement plan participants behaving badly in the areas of saving, spending and in their use of 401k loans.
It has implications specifically for target date design, and J.P. Morgan adding it “is much more varied and volatile than many target date fund providers assume, with significant ramifications around retirement outcomes.”
Among the firm’s “Ready! Fire! Aim?” research highlights (or lowlights, depending on point of view):
- A sizeable segment of participants is starting average contributions at a minimum 3.3 percent rate and failing to take any action to increase this
- Only wealthier participants at the higher end of the average contribution rate spectrum are even approaching the savings rate of at least 10 percent recommended by many industry experts
- Middle-income earners are most likely to take a loan from their retirement account
- The average participant withdrew more than 55 percent in any given year at or soon after retirement – just 28 percent of participants remain in their retirement plan three years after retirement
This year’s research included an expanded participant universe, drawing upon data from MassMutual Financial Group and Empower Retirement, who are recordkeepers for more than 4,000 defined contribution plans serving approximately 2 million participants.
“The latest ‘Ready! Fire! Aim?’ report reveals that many plan participants still aren’t positioned for retirement income success despite the efforts of plan sponsors, their advisors, and plan providers,” Anne Lester, Portfolio Manager and Global Head of Retirement Solutions with J.P. Morgan Asset Management, said in a statement.
They were able to identify and analyze the wide variation in behavior across income groups, demonstrating the need for plan sponsors to take into account the personal nature of retirement saving and spending in plan design, she added.
“It’s also critical for target-date fund managers to develop asset allocation models that reflect the fact that participant assets are most vulnerable to account losses in the years leading up to retirement and immediately after.”