- Buyer's Guide
Preparing for retirement is like training for a marathon. It takes dedication, determination and a long-term commitment, along with the right support and resources to complete the race. The ING family of companies in the U.S. (ING), which are leading providers of retirement and life insurance products, on November 5 released the results of a nationwide survey of retirement plan participants that underscores how Americans are at a disadvantage when it comes to their own financial marathon.
The survey, commissioned by the ING Retirement Research Institute, confirmed that employer-sponsored retirement plans are incredibly important to the workers who participate in them, but most are not maximizing the savings power of these plans to their full potential. The research found that plan investors often fail to recognize the potential long-term benefits that even a small contribution rate increase can produce in helping them successfully reach their retirement goals.
Americans Admit They Can, Should Be Saving More
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 percent) 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 percent) 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 percent) think it's more likely that scientists will clone dinosaurs in their lifetime than it is that Congress will save Social Security, and 77 percent 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 percent) admitted they could afford to increase their annual contribution by 1 percent of their annual salary; almost six in ten (59 percent) said they could up their contribution by 3 percent of salary; and nearly one third (32 percent) said they could afford a 5 percent increase.
"The irony is that Americans love raises," Leary said. "In our survey, most respondents (76 percent) 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 percent) determined their contribution rate themselves, and one in five (21 percent) said they "go by gut feeling."
When asked to estimate the lifetime value of a 2 percent increase in their contribution rate, only a small percentage could even come close. More often, people miscalculated. Forty percent of respondents underestimated by 50 percent or more and just about a third (32 percent) over-estimated by 50 percent 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 percent) 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 percent) said their employer-sponsored retirement account [401(k), 403(b), or 457] was their first investment and over half (52 percent) 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 percent) 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 percent) 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 percent) 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."
INGRetirement Contribution Rate Calculator
To better support Americans as they navigate the retirement landscape, ING has posted an easy-to-use calculator to its website to help demonstrate the potential long-term financial impact of contribution rate changes, including modest increases. The calculator is available to the public at http://ing.us/.
"All of us who are passionate about Americans' retirement prospects, from investment providers to plan sponsors to the media, must do a better job focusing people on the important impact of their retirement plan elections and arming them to make better decisions," said Leary. "Ultimately, as a leading provider of retirement products and services, both at the workplace and through financial professionals, ING's goal is to help make it easier for Americans to grow, protect, and enjoy their savings across all major life stages and financial milestones."
The national survey of 1,000 workers currently participating in an employer-sponsored retirement plan, such as 401(k), 403(b), or 457 plans, was commissioned by the ING Retirement Research Institute and conducted online by Mathew Greenwald & Associates through the Research Now panel, a panel that includes a large majority of U.S. households. The data were gathered between September 24 and 28, 2010. Quotas were set to get roughly equal samples of those in their 20s, 30s, 40s, and 50s and of men and women. Total data were weighted within each category to reflect U.S. Census statistics of employed individuals. The 95 percent confidence interval margin of error for the total sample is +/- 3.1 percent.