The Employee Benefit Research Institute’s 2015 Retirement Confidence Survey* found that Americans’ confidence in their ability to afford a comfortable retirement has rebounded from the record lows experienced between 2009 and 2013. This is seemingly great news about retirement confidence and Americans’ overall retirement readiness.
However, as the survey reveals, this increased confidence level is not actually based on any improved retirement preparations by Americans. Instead it represents the halo effect stemming from the optimism of those surveyed who have a retirement plan. Their confidence has doubled from 14% in 2013 to 28% in 2015, while the confidence of those without a retirement plan remained relatively flat at 10% in 2013 versus 12% in 2015.
According to the Retirement Confidence Survey, plan participant optimism resulted from the mere fact of having a retirement savings plan rather than taking any additional actions. The survey reveals a number of other interesting behavioral attitudes that provide an opportunity for retirement plan providers and advisors. In this article, we will review these somewhat surprising but helpful insights.
How Much Money Do I Need?
Despite the increased confidence of those surveyed who have retirement plans, almost two-thirds of workers surveyed (64%), still say they feel they are behind schedule when it comes to planning and saving for retirement. Interestingly only 48% of those workers reported that they have actually tried to calculate how much money they will need to retire comfortably. Although these plan participants set aside money for retirement, they believe they are behind schedule even though they do not know how much money they actually need.
Holiday Planning Takes Priority Over Retirement Planning
As the chart to the right shows, workers and retirees said they actually spend relatively little time doing any sort of retirement planning. Instead they spend more time planning for the holidays and equal time planning for social events as they do for retirement planning. As the results show, retirement planning is more likely to be seen as an onerous and confusing chore, rather than a step in the right direction towards fulfilling an important long-term goal.
Decreasing Discretionary Spending Could Yield Long-Term Retirement Results
Approximately 50% of those surveyed cite the cost of living and day-to-day expenses as the primary reasons why they do not save (or save more) for retirement. Yet those surveyed said they could save at least $25 a week more than they are currently saving for retirement by reducing spending on the following items:
- Eating out or ordering take-out food
- Soft drinks or snacks from vending machines
- Movies, videos, DVDs or streaming
- Coffee from specialty shops
- Lottery tickets
Spending less on these discretionary items could potentially mean an additional $100 a month and $1200 a year towards retirement.
Employees participating in a defined contribution plan were asked what they would do if they changed jobs and their new employer automatically enrolled them into a workplace retirement plan and deferred either 3% or 6% of their salary into the plan. Their responses are found below:
• At a 3% deferral rate half of participants reported they would actually raise their contribution and just 4% would reduce or stop the contribution.
• At a 6% deferral rate 30% of participants would raise the contribution rate while 20% would reduce the contribution and 3% would stop it altogether.
Participants Are Open to Automatic Escalation
If their employer were to implement auto-escalation, increasing the percentage of salary contributed to the plan by 1% each year, 46% of plan participants surveyed indicated they would let their contribution continue to escalate to 10% or more. Other responses include:
The results of this annual retirement survey indicate that there is an opportunity to help participants in a number of ways. Assistance may include directing participants to tools they can use to calculate how much they will need in retirement, as well as educating them on how trimming discretionary spending may help them to better fund retirement. In addition, the benefits of implementing robust automatic enrollment and escalation features in a retirement plan are clear.
ABG can provide the information and resources you need to help employees understand and focus on their retirement goals. Speak with your local ABG representative today.