Employees are ill-prepared for retirement … but how much do they really care?

People are ill-prepared financially for retirement.If the economic shocks of the past five years haven’t been enough to spur people to focus on their financial futures, one wonders what it would take for them to do so.

You’d think that more people than ever would be taking the time and effort for retirement  planning … but a recent study conducted by CFO Research Services and Koski Research, done on behalf of the Charles Schwab investment firm, belies that notion.

The study, which was completed in April 2012, surveyed ~200 senior finance and HR execs from mid-size and large U.S. companies, along with ~1,000 401(k) plan participants. The research found that despite the efforts by employers to educate their workers on the financial offerings available to them, not only are most employees financially unprepared for retirement, they’re also disengaged from the process.

More specifically, over half of the employers surveyed report that their 401(k) plan participants are not taking full advantage of the investment options, features and other services offered in connection with the these plans.

And it’s not for lack of trying on the part of companies. Among the tools employers are offering their 401(k) plan participants are:

  • Interactive planning tools (~93% offer)
  • In-person meetings or workshops (~81% offer)

Employers are even taking the step of auto-enrolling employees into 410(k) savings plans as a way of spurring interest.

But as the saying goes … you can lead a horse to water, but you can’t make it drink. In fact, only a minority of employees in the Schwab survey express the desire to manage their own workplace savings programs. They give numerous reasons for this, the more prevalent ones being:

  • Don’t have the time
  • Insufficient knowledge
  • Just not interested

This lack of attention on their plans is illustrated further in this stunning statistic: Three-fourths of the employees surveyed spend fewer than eight hours annually managing their 401(k) account. That’s less than 45 minutes per month, on average.

Considering that for many participants, their 401(k) plan represents the single largest category of savings they have, this is a startling finding to say the least.

People talk a good game, it seems: More than four out of five respondents in the Schwab survey claim they’re interested in receiving professional investment management advice from their employer.

But this hardly translates into action. While many companies are offering such support … only ~10% of employees actually takes advantage of such advice when it is offered.

The final, sobering finding from the survey is this: For those respondents who have attempted to calculate the savings they believe they’ll need for retirement, there is an eight-fold gap between how much they’ve actually saved and how much they calculate they’ll need to have in retirement.

It’s pretty difficult to ignore that oncoming freight train … but not if you close your eyes and cover your ears.

Getting the Message on Retirement Savings

401(k) plan balances are actually increasing.
401(k) plan contributions -- and balances -- are back on the increase.
Have Americans finally gotten the message about saving for retirement? Judging from the most recent published stats on 401(k) savings, it would seem so.

Last month, it was reported that 401(k) retirement savings have hit a 12-year high, with an increase of ~3.5% in contributions being charted during the first quarter of 2011.

What about average account balances? Today, those stand at about $75,000. That’s still woefully inadequate considering what (little) people can expect to receive from Social Security as they reach retirement age. But it’s a darn sight better than the ~$41,000 average 401(k) plan balance that existed in 2002.

Of course, averages can be misleading, since the figures can be skewed by some very hefty balances held by a very few highly compensated workers at the top of the heap. In fact, more than 55% of workers have less than $25,000 in their 401(k) plans.

On top of that, nearly one in four plan participants has outstanding loans against their plans.

Clearly, the recession has had a big impact on contribution behavior – even as workers have become more sensitized than ever about the inability of Social Security to cover their retirement needs.

Making 401(k) contributions are not an option for the unemployed, of course, but there are many other workers who were forced to reduce their contributions to cover for losses of family income because of a spouse losing his or her employment.

And some have had to borrow against their plan assets in the more serious circumstances. Those loans are actually up by double digits.

Still, it’s heartening to see the latest numbers … as it appears that “awareness” is now being translated into “action.” Would that we could rely on our local and national politicians to do the same thing …

Your declining retirement savings: It’s all relative.

EBRI's Annual Retirement Confidence Survey
The EBRI's 2010 Retirement Confidence Survey reveals severe challenges faced by many American workers.
As difficult as the last two years have been on your finances, you’ve probably saved a lot more for retirement than your fellow workers.

How is that possible? Because it’s all relative. The Employee Benefit Research Institute’s most recent annual survey of U.S. workers and their retirement savings reveals that the percentage of workers having fewer than $10,000 in savings stands at 43%. That’s up from 39% in 2009.

Even more ominous, the percentage of workers who reported they have less than $1,000 in savings is 27% — significantly more than the 20% reported in 2009.

The EBRI’s definition of retirement savings excludes the value of primary homes and defined-benefit pension plans. Still, these are startling figures, showing that large numbers of Americans have little if anything in the way of a savings safety net.

It’s true that some people have plowed their savings into the purchase of a home. But these “house poor” individuals are often among the first who face mortgage foreclosures upon the loss of a job, because they have so few cash resources upon which to fall back.

If there is a glimmer of good news in these dreary statistics, it’s that more people are awakening to the reality of their finances. Gone is the notion that Social Security will pay enough for a decent retirement lifestyle. Indeed, less than 20% of respondents expressed confidence in their ability to save enough for a comfortable retirement. That’s the second lowest reading ever recorded in the 20-year history of the EBRI’s annual survey.

Only ~45% of workers with some form of savings have more than $25,000 stashed away … and people know that $25,000 is not nearly enough for retirement, Social Security payments being what they are. Consequently, in the 2010 EBRI survey, one in four workers report that they’ve decided to postpone their retirements (that’s up from ~15% saying so in the 2009 EBRI research).

For its survey, the Employee Benefit Research Institute queried ~1,150 U.S. workers (age 25 and older) plus retirees, making it one of the most comprehensive field studies on the topic of U.S. retirement savings. There’s a wealth of additional statistics and insights available here.