Gulf in retirement preparedness mirrors gulf in behaviors

There’s been progress in how well prepared people are in saving for retirement, but there’s still plenty of room for improvement.

So says the Empower Institute in its white paper “Scoring the Progress of Retirement Savers,” which looks at the progress that’s been made among Americans in preparing for retirement and identifies areas in which there’s still a need to improve.

At present, says the paper, the median projected income replacement among study participants is 64 percent—meaning that people will still come up short some 46 percent if they’re trying to replace the whole of their current income during retirement.

In addition, it says, there’s “a wide gap between those who plan and those who do not; between those who save and those who do not; and between those who contribute at higher vs. lower rates.”

There’s a possible gap in understanding retirement plan concepts as well. The report says that understanding their employer’s matching formula is important for workers, because among those that do, 73 percent of them set their savings rates to capture the full match (56 percent of total survey participants).

And there’s a gap in results obtained between those who work with an advisor and those who don’t. Advisor-assisted workers have a 33-percent point advantage in projected income replacement compared to workers who don’t have access to an advisor, the report says.

While 78 percent of respondents expect the economy to grow in the next year, and 39 percent say they’re “not at all concerned” about job security, both the most optimistic findings since the study began, that doesn’t tell the whole story. Women are only half as likely to expect robust economic growth as men, and the percentage of women who expect an economic recession is higher.

In addition, approximately a third of the population has no access to an employer-provided retirement plan, which means that they’ll have a tough time coming by enough income during retirement—especially since more than half of those who do participate in an employer-sponsored plan expect that plan to provide them with income second only to Social Security.

And participants eligible for a defined contribution plan and actively contributing have a median income replacement percentage of 79 percent, compared to only 45 percent for those without access.

There’s an age-based difference in preparedness, as well, with those closest to retirement having the lowest projected replacement percentages; those furthest from retirement, namely millennials, have the highest. They also have access to plans and products that boomers did not have at their age.

It’s not just saving, but saving enough that matters—and there’s a big difference. Participants who contribute under 3 percent of pay have a median lifetime income replacement percentage of under 60 percent, while those who contribute 10 percent or more have a median retirement income replacement of over 100 percent. In addition, participants who plan for retirement are more confident—and also have projected income replacement results well above the survey median.

Paying down debt is an obstacle to retirement saving, with 32 percent saying that once they have done so they’ll increase contributions. Another factor that boosts participation is the drive to get 100 percent of employer matching funds. And then there’s peer pressure—once workers learn what colleagues are contributing, it can spur them to up their own contributions.

And if retirement contributions don’t come in for favorable tax treatment, it’s a major factor in discouraging lower-income households from saving more—or even saving at all.

Automatic plan features, education about both their future retirement needs and plan matching funds, as well as personalized help in understanding the ins and outs of the plan are all powerful means of increasing participation and savings rates. The paper recommends that taking such specific actions can further improve workers’ retirement preparedness.

BenefitsPRO related reading:

What will retirement planning look like in 2020?

6 decades to prepare: A checklist for women’s retirement planning