Americans Still Fretful about Financial Future

October 6, 2004 ( - As it does bi-annually, the Principal Financial Group recently took stock of Americans' mood about their finances and the resulting picture isn't a pretty one.

Principal’s third quarter 2004 Principal Financial Well-Being Index showed that Americans at companies with between 10 and 1,000 workers continue to be beset by their worry about their financial security – particularly about their long-term financial future.

The survey, by The Principal and conducted by Harris Interactive, reveals that a quarter of American workers (26%) said they are extremely happy about their current financial well-being, down from 34% in the first quarter of 2004. However, a vast majority (78%) said that they are very concerned about their long-term financial future (up slightly from 76% in first-quarter 2004).

Employer benefit offerings appear to have eased the situation somewhat, according to the survey. Satisfaction ratings for employee benefits rose across the board, especially with defined contribution plans. The Principal found that 53% of American workers say they are satisfied with their defined contribution plans, up from 43% in first quarter 2004. Satisfaction with defined benefit plans also rose (53% from 46%). The poll found satisfaction ratings for employer-provided life insurance, disability insurance and health insurance, also rose.

In general, American workers said their benefits continue to be important to them, although slightly less in importance from earlier in the year. The top rated benefit in terms of importance was health care, with 89% of respondents saying it was very important (down from 92% in first quarter 2004). The next most important benefit was their defined contribution plan (68%) followed by defined benefit plans (54%).

With plan sponsors continuing to fret over their participation and deferral rates, one thing that could help workers better reach their goals is to impose automatic enrollment under which participants automatically get put into a savings plan. While only 16% of employees noted their employers doing this, the study showed interest amongst employees in automatic enrollment, with 36% supporting such a program and 36% opposing it. Meanwhile, nearly half of workers surveyed (47%) agreed that they would enroll in a program that automatically increases their 401(k) deferral rate an additional 1% each year.

When their attention turns to life after work, more than half of the workers (53%) said they anticipated a declining standard of living while in retirement. Two-thirds (66%) of employees over the age of 55 say their standard of living in retirement will drop. Also, they may have to work longer. That same group of older workers also expects to retire at the age of 67, higher than the average age at which all workers expect to retire (65).

American workers are increasingly interested in receiving help to manage their retirement investments. More than half (51%) of employees prefer to select their own investment funds. Additionally, those respondents who noted they prefer to have someone manage their investments were also asked if they prefer lifestyle funds handled by a fund manager or professionally managed accounts through a financial advisor making investment decisions on their behalf. The majority (52%) said that lifestyle funds were their preferred method, versus the 29% that said they’d prefer fee-based financial advisors.

According to the Principal announcement, anxiety over the economy and jobs is being driven partly by people working longer hours. Nearly a third of American workers (30%) said they are spending more time in the office this year than last year. This is up significantly from the first quarter 2003 study, when only 22% said they were working more. Also, 16% of employees agreed that they would actually lose vacation time this year because they can’t afford to take the time off.

The Principal commissioned Harris Interactive to conduct an online study of 1,227 employees (ages 18+) of small and mid-sized U.S. businesses (firm size 10 – 1,000) between August 19 and September 2, 2004.