Workers and Retirees Plan to Use Tax Refunds Wisely

March 10, 2008 ( - Worries about the economy are driving American workers and retirees to plan to use their expected tax refunds wisely, according to findings of the latest Principal Financial Well-Being Index.

According to a press release on the survey results, most workers (83%) do expect income tax refunds. Nearly half of workers (45%) said they plan to use the proceeds to pay down or pay off short-term debt; 40% indicated they plan to save or invest the refund; and 22% said they will pay down or pay off longer-term debt. Only six percent of workers indicated they would splurge on big-ticket items.

Significantly fewer retirees (46%) expect a refund this year, the press release said. Although the same number of retirees plan to save or invest their refund (40%), only 16% plan to pay down or pay off short-term debt, and 22% plan to pay off longer-term debt.

Twice as many American workers (42%) in the latest survey compared to fourth quarter 2007 (21%) said they now believe the U.S. economy is in a recession. Another 46% of workers believe the economy is headed for a recession.

The Principal found nearly half of respondents (49%) listed job security as being most important to them, followed by long-term financial security (37%), and challenging work (14%). The index revealed that more than two-thirds of workers (67%) are very concerned about their long-term financial security. Sixty percent of workers expressed concern about their ability to save for retirement, while nearly half expressed concern about even being able to cover monthly expenses (49%) and reduce credit card debt or pay off short-term debt (41%).

The survey also revealed that workers are increasingly embracing automatic savings opportunities, with nearly half (48%) agreeing that employees should be automatically enrolled in their employer-sponsored 401(k) retirement plan with a standard savings rate. The uptake of lifecycle/target-date funds also continues to grow. Nearly one-fourth (24%) of those workers who indicated they prefer to have someone manage their funds for them, said they would select a lifecycle/target-date fund that is handled by a fund manager based upon their estimated retirement year.

For workers in the survey who elect not to participate in an employer-sponsored retirement plan, 57% said it is mainly because they lack financial resources to do so. Another 15% indicated they are not eligible for their plan, and 13% said they are too uncomfortable about investing. Among those workers whose employer does not offer access to a retirement plan, one out of five (21%) said they are not saving at all for retirement, and nearly half (47%) indicated they are using their checking and/or savings account as a means of saving for retirement.

Additionally, more Americans responded that the Democratic Party (33% of workers and 39% of retirees) is best prepared to navigate Americans through a recession, address the economy, and improve financial well-being, compared 24% of workers and 26% of retirees who said the same about the Republican Party. More than one-third of workers (38%) and almost half of retirees (48%) said their current financial well-being is worse now than it was when President Bush took office. Another third of employees (35%) and 40% of retirees indicated their financial well-being is about the same, and only 26% of workers and 12% of retirees said their financial well-being is better.

This Principal Financial Well-Being Index survey was conducted online within the United States by Harris Interactive on behalf of the Principal Financial Group between January 28 and February 3, 2008, among 1,316 employees and 589 retirees.