Reality Check: The Overconfident Retirement Plan Participant

Silviya Simeonova by on Apr 24, 2017

Scottrade recently released a retirement study that explores investors’ attitudes toward retirement, financial advice and the (yet to be implemented) fiduciary rule. The study found that 85% of investors are at least somewhat confident that they will have enough money to retire comfortably, with Seniors (70+) most likely to say they are extremely confident. Corporate Insight’s own survey of retirement plan participants from December 2016 paints a similar picture of high optimism for retirement outcomes, with seniors (Silent Generation) appearing most optimistic and Gen Xers being least optimistic. Overall, 57% of all respondents are confident or very confident, and 33% are somewhat confident. Looking specifically at the Silent Generation, 76% are confident or very confident.

Figure 1. Retirement confidence by age group
As you think about your retirement savings, how confident are you that you will be able to afford the retirement lifestyle you desire?

Participants’ high degree of confidence is also reflected in their planned retirement age. The overwhelming majority (95%) of respondents age 74 and younger plan to be retired by the age of 75. Comparing this to today’s reality, however, just 77% of plan participants age 75+ have retired.

 

Figure 2. Retirement expectations versus reality

Juxtaposing plan participants’ optimism with their self-reported retirement readiness, we see a clear disconnect. Our survey revealed that 36% of Baby Boomers contribute less than 10% of their salaries to their plans. A third (33%) of those between the ages of 60 and 70 have accumulated less than $200k in their DC plan accounts. Admittedly, 76% of Baby Boomers are saving for retirement through additional vehicles like brokerage accounts and annuities. That said, our survey shows that 38% of Boomers with under $200k saved in their DC plans are not saving through any additional methods.

Though farther away from retirement, Millennials and Gen Xers are also not on track to reach this milestone in good financial shape. According to a 2016 Wells Fargo survey, 41% of Millennial respondents were not saving anything for retirement at the time. Of our own Millennial survey respondents, just 43% meet the oft-cited industry benchmark of a 10% salary deferral rate. What’s more, 42% have less than $50k in their employer-sponsored plans. Looking specifically at older Millennials, or those between the ages of 30 and 35, 36% have saved less than $50k.

This disconnect between participants’ retirement expectations and their savings habits stems in part from their limited understanding of, and comfort with, the logistics of retirement planning. Scottrade’s retirement study found that almost half (48%) of investors are overwhelmed by all the retirement investment choices available to them. Our own survey asked participants if they know how much they need to save to be able to afford the retirement lifestyle they desire, and the results were somewhat troubling. Over a quarter of Baby Boomers (27%), a substantial figure for a cohort nearing retirement, answered in the negative. Nearly half (47%) of Millennials and 37% of Gen Xers admit that they don’t know how much they need to save for retirement either. With retirement decades away, it’s easy to see why younger respondents are not yet anxious about preparing for this milestone. Yet, the power of defined contribution plans lies in compound interest and in the fact that participants’ assets are locked until retirement, which suggests it’s in their interest to start contributing as early as possible.

These statistics point to a need for stronger education, more readily available financial advice and automatic savings features. Armed with these tools, participants would be able to navigate retirement planning more confidently and successfully. Corporate Insight’s Satisfying Today’s Retirement Plan Participant study covers these findings in more detail and examines other important implications for retirement plan providers. To secure your copy of this research report, please contact your Corporate Insight Relationship Manager or email Erin Bosetti at ebosetti@corporateinsight.com.