Defined contribution participants know what they need to do when it comes to retirement saving, but there's a gap between knowing what to do and being able to act on that knowledge, according to a new survey by State Street Global Advisors, the asset management business of State Street Corp.
The survey of more than 1,000 401(k), 403(b), 457, and profit-sharing plan participants found that 78 percent of respondents knew it is important to determine how much to save for a secure retirement but only 33 percent felt they had the knowledge to figure that out. Eighty-three percent of respondents said they could cut at least 5 percent out of their household budget to save more, and 64 percent said they could reduce expenses by 10 percent or more. More than half said they would be willing to increase their savings rate to as high as 10 percent if their employer automatically increased their savings rate by 1 percent each year.
The bi-annual SSgA Defined Contribution Investor Survey, conducted jointly with Boston Research Group, was attempting to identify DC plan participants' behaviors and perceptions about saving and investing. It found that simplicity and repetition are key to engaging employees to help close the "Action Gap."
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"The survey uncovered some very encouraging findings, the most striking of which was that the majority of DC investors have the flexibility in their budgets to support greater retirement savings," said Kristi Mitchem, senior managing director and head of Global Defined Contribution for SSgA. "Many are also open to automatic savings increases up to 10 and 15 percent, which is very promising news for employers. We encourage employers to test savings elasticity with their employees and to encourage higher savings rates by implementing savings challenges or by automatically increasing the savings default rate."
Despite high education levels, only one-third of survey respondents claimed they could tackle the task of diversification although two-thirds acknowledged they know this is important when investing for retirement.
"The 'Action Gap' was a key finding of our survey because it indicates that DC investors are not totally in the dark as some studies have suggested," said Mitchem. "They clearly are aware and understand what is important to their retirement success but are confused about how to turn their understanding into informed action. We believe the more we can help employers understand the reasons for the action gap, the better equipped they can be to help employees take steps to save more and invest more wisely."
About 40 percent of those surveyed said they were uncertain about the risk and return characteristics of common investments found in 401(k) plans, including international equity funds, stock index funds and stable value funds.
About 67 percent know that adjusting their investments over time is important, but 30 percent said they didn't know how to do that. Eighty-two percent said it is important to know how to make your retirement savings last a lifetime, but just 28 percent reported they know how to achieve this.
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