Retirement plan participants ready and willing but don't know where to start
An increasing number of participants “wish they could push a button and completely hand over retirement planning," says a survey from JP Morgan.
More and more workers with workplace defined contribution plans are saying “give me more help” — help with contributions, help with investment decisions, help post-retirement, help with overall financial wellness — and they want that help to come from employers and financial professionals, according to J.P. Morgan’s 2021 Defined Contribution Plan Participant Survey.
Looking for an “easy” button
An increasing number of participants “wish they could push a button and completely hand over retirement planning,” with this percentage rising from 55 percent in 2016 to 62 percent in 2021, according to a survey of 1,281 DC plan participants, conducted by Greenwald Research on behalf of J.P. Morgan Asset Management.
Meghan Jacobson, head of U.S. insights at J.P. Morgan Asset Management, said in an interview that participants are willing to spend the time planning, but don’t know where to start — especially for those under 30.
“We know that participants trust their employers and look to them for guidance when it comes to deciding how much to save and choosing the right investment options,” Jacobson told BenefitsPRO. “As an industry, it’s up to us to work with plan sponsors and help them take the proactive steps to set participants up for success. Participants want more help and employers are in the unique position to answer the call.”
No illusions about having saved enough
The survey also found that the majority of participants think they should be saving more than they are. While three in four survey respondents believe they should be contributing at least 10 percent of their salary in order to be financially secure in retirement, 65 percent say they have not contributed the amount they believe they should in the past year. Nearly seven out of 10 respondents (69 percent) are concerned about outliving their money in retirement.
“There’s a lot in this world we know we should be doing – getting more exercise, going to bed earlier – but life gets in the way, inertia takes hold and we continue along the path we are on,” Jacobson said. “Budgeting is no different.”
When respondents were asked why they are not saving more, the most common reason is “to pay off debt” (41 percent), followed by “not earning enough” (28 percent) and other savings (24 percent) or spending (23 percent) priorities.
“The good news is, we have tools we can use to proactively set up participants for success, like financial wellness programs, setting the starting point for automatic enrollment contribution rates higher than the current 5 percent average and/or automatically escalating contributions until they reach more realistic levels of 10 percent to15 percent for safer retirement funding,” she said.
Automatic features of interest
Participants are becoming increasing interested in automatic enrollment and automatic escalation of their contributions, rising to 87 percent this year, according to the survey. Four in 10 survey respondents are automatically enrolled in their current plan, up more than 50 percent from 2016.
Providing target savings rates and retirement balance projections can be helpful to help quantify participants’ savings goals, Jacobson said. Moreover, a broader adoption of employer-sponsored financial wellness programs may also help address some of the main reasons participants are not saving more for retirement, such as too much debt or other spending constraints.
Retirement plans, financial wellness very important to workers
Nearly all of the survey respondents say that retirement plan benefits are “extremely important” or “very” important for improving their financial wellness, with health insurance and PTO/vacation/sick leave following close behind. A majority of respondents say that their employer has a responsibility to help them with their financial wellness – and for those under 30, that percentage rises to 80 percent.
Emergency savings are top of mind, but saving for retirement remains top priority, according to the survey. When asked to allocate $500 into different savings vehicles, participants allocated $197.80 on average to their retirement savings account; $134.10 to an emergency savings account; $72.90 to help pay down debt; $60.80 to a health savings account and $34.40 to a transportation savings account.
“The pandemic highlighted the need for emergency savings accounts, but retirement is still the most important savings goal for many,” Jacobson said. “What’s more, emergency savings accounts can help further retirement readiness because participants with a healthy savings account are less prone dip into retirement savings if an unforeseen expense pops up.”
The survey also found that that younger participants are more likely to favor the approach of contributing to an emergency savings account first, until it reaches a certain amount, and then putting the rest into a retirement account.
“We think this is a great way to engage younger participants,” she said.
Concerns, dreams
Other key survey findings include:
– Almost 90 percent of respondents say that being offered retirement benefits is a key factor in their decision whether to remain at their current employer – or opt for a job at another employer.
– The age that respondents plan to retire vary widely: 24 percent expect to retire at age 64 or younger, 34 percent at age 66 or older and 19 percent are not sure.
– A majority of respondents are concerned about outliving their money in retirement. Less than half (47 percent) have calculated how much money they need to accumulate to last throughout retirement, and a third (33 percent) are not confident about how to estimate how much they will have in their plan when they retire if they continue saving at the same level.
– Many would welcome a post-retirement income option in their plan. A large majority of respondents (85 percent) say that they would likely leave their balances in their plans post-retirement if there was an option to help generate monthly retirement income. The percentages rise for younger participants — 91 percent for ages 30 to 49, and 86 percent for those under 30.
READ MORE: