K Plan Participants Dour About Retirement Prospects

May 24, 2004 (PLANSPONSOR.com) - A new survey of defined contribution plan participants portrays American workers as radically more pessimistic about their retirement chances or whether they will have enough to live on when they stop working.

The John Hancock Financial Services survey found that respondents’ average expected retirement age was up three years from 2002 to 64.4 and up a significant five years from the firm’s 1995 study, according to a news release.

Almost 18% said they don’t expect to be able to retire until age 70 or older – almost twice the number giving that answer in 2002 and more than triple the 1995 survey results. Almost seven in 10 said they were either somewhat or very concerned that they will not have enough money to live comfortably in retirement; up a sharp 11% from the 2002 survey.

Many participants haven’t exactly taken an active approach to their accounts. For example, nearly half have never made any changes to their investment contributions or asset allocations while nearly 60% made no changes to the asset allocation mix of their retirement portfolios or contributions in the past 12 months.

Survey author Wayne Gates, general director, Market Research and Development, said some of the pessimism may be a hangover from the 2001-02 economic downturn, but most of it is well-founded. “Beyond simply putting money into their 401k plan, most participants are almost entirely disengaged from the retirement planning process,” Gates said in a news release “Even during the boom years, they essentially were leaving retirement security to luck. I think belatedly they may be coming to this realization and now fear they’re running out of time-and luck.”

Other survey findings include that:

  • more than half spend no more than twenty minutes a month planning for retirement or managing/monitoring investments
  • only slightly more than half of respondents have ever calculated how much money they will need to maintain their existing lifestyle in retirement
  • more than half say they don’t have time to manage their retirement investments.

Knowledge Level

Even if participants were inclined to be more actively engaged, they remain unequipped to make the right choices, with most still not grasping basic investing concepts or information, Hancock said. For example, 40% of respondents say they don’t know what to expect for average annual returns for stocks, bonds, money market and stable value investments for the next five and 20 years. Of the 60% who believe they do know, their expectations remain overly optimistic.

In addition, participants still think:

  • employer stock is less risky than a domestic or international stock fund
  • government bond funds and domestic bond funds are less risky than money market funds.


  • more than 60% of respondents don’t know they can lose money in a government bond fund
  • nearly 45% think money market funds contain stocks and less than 10% know they contain only short-term investments; less than 25% know the best time to invest in bonds is before a decrease in interest rates.

A new approach?

In the Hancock news release, Gates called for a new education approach for K plan participants with two facets:

  • encouraging participants to seek professional financial planning assistance
  • encouraging plan sponsors to redesign plans to reflect human behavior, not economic theory.

“The theory was that if you offered the right combination of investments and educational tools, participants would take on the challenge of investing responsibly to achieve financial security by retirement. The reality is that this has never happened,” Gates said. “We’ve had more than a decade of educational efforts and investing experience, including a full boom and bust market cycle, and most participants are no more knowledgeable, nor any more engaged today than they were in 1991. We need to dramatically simplify the retirement planning process. The solution isn’t more education, it’s more simplification and more automation.”

Gates argued that plan sponsors could help participants if they gave them with the option of choosing:

  • automatic enrollment upon eligibility
  • a default investment option that would automatically allocate their contributions into an appropriate equity and fixed income mix based on age and risk tolerance
  • automatic and periodic portfolio rebalancing
  • automatic increases in their contribution rates coincident with salary increases until the maximum contribution rate is reached.

The national survey of 800 defined contribution plan participants, the ninth Hancock has conducted since 1991, examined their knowledge, attitudes and actions relating to retirement savings.