Employees Are Sure About Retirement, Retirement Plans Say Otherwise

January 26, 2004 (PLANSPONSOR.com) - More than seven out of 10 (72%) employees are confident they will be able to maintain the same standard of living in retirement, yet only a quarter describe themselves as financially independent.

Other disconnects were found between a hopeful future in retirement and the grim reality of saving for it. Fifty-two percent of employees actively contributing to their 401(k) plans believe they could be doing a better job when it comes to saving and investing, nearly the same number (49%) fret they are not saving enough and 18% say they do not know if they are saving enough, according to Hewitt Associate’sEmployee Perspectives on Retirement Saving and Investing 2003 report.

“One of the major disconnects highlighted in the study is that employees tend to believe that their retirements will work themselves out in the end,” Lori Lucas, director of participant behavior research at Hewitt, said in a news release. “At the same time, however, they fear that they’re not doing enough when it comes to saving and investing.”

“The volatile market of the past few years has made many employees realize that they lack the information and skills necessary to manage their 401(k) plans effectively,” commented Lucas. “They’re overwhelmed by the decisions they need to make and admit that they need help.”

Employees though may be realizing more can be done on their part to ensure a similar standard of living in retirement to that which they enjoy now. Of the majority of employees that thought they could be doing a better job saving for retirement, the average contribution rate ranged from 5% to 6%. In contrast, among the 27% that felt they are saving about the right amount, the average contribution rate was 8%.

Yet even the top end of contribution rate pales in comparison to the 10% to 15% that economists cited by Hewitt suggest the average employee sock away into retirement accounts in order to achieve adequate retirement income replacement. To this deficiency, 51% of the 3,500 employees at large companies canvassed by Hewitt cite other financial obligations as the number one reason preventing them from contributing more to their 401(k) plans. Specifically:

  • day-to-day needs
  • saving for emergencies
  • saving for children’s needs
  • lifestyle purchases.

Other barriers include market volatility (36%) and not having enough information to make the appropriate decisions (24%).

Participants are not altogether confident in the funds they already have socked away. Only 32% of employees polled believe that they invest well in their savings plans through their own efforts or through outside help. Among the reasons provided for doing a substandard job looking over their retirement funds was:

  • 45% – not enough information to make the right investment choices
  • 44% – recent market volatility shied them away from actively managing their accounts
  • 41% – not enough time to manage their accounts.

Further, more than half of employees want more than just investment tools to help them make their retirement investing decisions, with 32% preferring a trusted expert and 22% opting for advice from outside sources.

Copies of Hewitt’s study, “Employee Perspectives on Retirement Saving and Investing 2003,” are available from the Hewitt InfoDesk by calling 847-295-5000, or by email at infodesk@hewitt.com.