ING's survey clearly indicates that Americans know they are responsible for their retirement, and admit they could be saving more.
According to the findings, a majority of workers (87%) said they could be saving more in their employer-sponsored retirement plan, a savings vehicle they deem critically important to reaching a secure retirement and the foundation of most their retirement savings strategy. In fact, of the 1,000 workplace retirement plan participants surveyed, nearly two-thirds (64%) said their employer-sponsored retirement plan accounts for all or most of their retirement portfolio. However, many participants are not stretching to maximize their contributions when they can. Moreover, they tend to rely on "guesswork" when setting contribution levels, and don't fully understand the importance and long-term impact of small increases in contribution rates.
"Americans today understand that they shoulder a greater responsibility for securing their own retirement," said Rob Leary, CEO, ING Insurance U.S. "They also recognize that an employer-sponsored retirement plan is the cornerstone of their efforts to save for retirement. Still, the issue for many workers, made even more urgent in shaky economic times and an era of volatile equity markets, is scrubbing household budgets and, when possible, finding more dollars to save for retirement. Being cost-conscious is certainly important and prudent, but at the same time, people must also find ways to contribute more into their retirement accounts."
And it's not like they're confident in the future of Social Security. In fact, more respondents (51%) think it's more likely that scientists will clone dinosaurs in their lifetime than it is that Congress will save Social Security, and 77% of those with kids at home say their child is more likely to catch a foul ball in the seats at a baseball game than cash a Social Security check.
ING's findings suggest that even though workers may acknowledge the retirement saving challenge, it has not necessarily resulted in better saving behaviors, at least not in their employer-sponsored retirement plans. Of those participants not contributing the maximum to their retirement plan, an overwhelming majority (87%) admitted they could afford to increase their annual contribution by 1% of their annual salary; almost six in ten (59%) said they could up their contribution by 3% of salary; and nearly one third (32%) said they could afford a 5% increase.
"The irony is that Americans love raises," Leary said. "In our survey, most respondents (76%) would prefer even just a slight raise over a shorter commute to work. We recognize that the current economic environment is challenging for most everyone and robust salary increases are currently not the norm; nevertheless, Americans cannot delay giving themselves a retirement raise. A modest increase in your workplace retirement plan contribution rate can go a long way toward ensuring a more financially secure retirement."
Most Workers Overlook Long-Term Impact of Modest Contribution Rate Increases
ING's survey also indicated that plan participants lacked a clear understanding of contribution rates and the lifetime value of even small increases.
In fact, for many workers, setting workplace retirement plan contribution rates appeared to be either a guess or a back-of-the-envelope calculation. Very few of those surveyed consulted outside resources in determining their contribution levels. Nearly two-thirds (65%) determined their contribution rate themselves, and one in five (21%) said they "go by gut feeling."
When asked to estimate the lifetime value of a 2% increase in their contribution rate, only a small percentage could even come close. More often, people miscalculated. Forty percent of respondents underestimated by 50% or more and just about a third (32%) over-estimated by 50% or more.
"After choosing to participate in the plan, the most important decision workers make is setting their contribution rate each year," said Catherine Smith, CEO, ING U.S. Retirement Services. "However, for too many, participation and contribution rate elections are just another box to check. We need to be more deliberate and take the time to consider things like tax impact, compounding, and the effects of employer matches in making these elections."
Employer-Sponsored Plans – the Cornerstone of Retirement Savings
For most Americans, understanding and maximizing the use of workplace retirement plans is critical since these plans are not only the cornerstone of their retirement portfolios, but the main vehicle through which they are exposed to and learn about investing.
Nearly half of the plan participants polled (44%) admitted that if they didn't have a retirement plan at work, they probably wouldn't be saving for retirement at all. In fact, most respondents (58%) said their employer-sponsored retirement account [401(k), 403(b), or 457] was their first investment and over half (52%) said their plan was the main place they learned about investing.
In addition to offering entry to the investing world, many respondents said that their workplace retirement plan continues to provide critical investment knowledge and insight. Better than two out of five (42%) said all or most of their investment knowledge comes from managing their employer-sponsored retirement account.
They also gave overwhelming credit to their employer for putting them on the right path. In fact, those polled cited their employers as having the most influence in getting them to start saving for retirement, followed by family and friends. Moreover, their employer match was cited by most participants as the most important reason they contribute to their workplace plan. Still, there is clearly room for progress. Over half (55%) agreed that if their employer provided them with more detailed education, they might contribute more to their plan. In fact, better than 7 in 10 (72%) wished their company customized information for their personal situation.
"For many working Americans, an employer-sponsored retirement plan isn't simply a stepping stone into the investment world, it's the foundation for their future investing education and financial decision-making," said Smith. "The lessons learned in managing a workplace retirement plan are critical, and they can make the difference between a long and comfortable retirement and a retirement that falls well short of their dreams and goals."
