According to the Putnam Participant Poll, 46% of respondents said they expect to live “less well” or “struggle” during their retirement years and more than one in 10 (13%) have completely thrown in the towel. They’ve given up, they say, because they know they won’t be able to amass enough savings anyway. Participants’ confidence that they are socking away enough is also down 10% compared to Putnam’s March 2003 survey.
The good news is that many participants are willing to recognize the glimmers of sunshine in the economic picture. Seventy percent of respondents believe the economy is growing and 54% expect the stock market will move higher in the next 12 months. Those two factors – uncertainty about their retirement savings coupled with general economic optimism – has prompted many participants to rethink their 401(k) deferral rates, the study found.
“For the first time in almost three years participants are optimistic about the future and are re-examining their savings habits,” observed Elizabeth Pasciucco, managing director, director of marketing, communications and education, Putnam Institutional Retirement Services. “For many, making changes today will have considerable impact on the quality of their life in retirement.”
One stumbling block is the confusion by many participants about their plan’s rules. A scant 8% of those under age 50 correctly identified their 2003 401(k) tax-deferred contribution limit as $12,000. Sixteen percent think the limit is higher; 77% believe it is lower. Among those participants age 50 and over, just 2% correctly identified their limit as $14,000.
“It really opened our eyes,” Pasciucco explained. “To think that the vast majority of people who are participating in 401(k) plans have no idea of the maximum amount they can contribute is staggering. It may explain why less than 15% of participants actually max out their savings.”
When asked if they had a chance to re-live the past 12 months financially, 55% of respondents said they “would have saved more of their pay in their 401(k).” Looking ahead, they cited a “big raise or bonus,” a “free financial planner,” “easier management” and “a better understanding of the choices” as reasons to increase their savings rate.
While respondents would like to save more, many identified the experience of making transactions, like increasing deferrals, as “far from painless.” Respondents ranked the experience as less difficult than applying for a mortgage or correcting a mistake on a credit card bill, but about the same as renewing a driver’s license or changing a long distance phone service. A full 44% said the enrollment process “should have been considerably easier.”
The survey was conducted online, by BrightworkPartners with 1,000 active 401(k) plan participants in the last quarter of 2003.