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Debt, Failure to Plan Impede Retirement Savings
 

By Stephen Miller, CEBS  3/25/2014
 

Managing daily expenses and the cost of living were the No. 1 reasons why employees don't save (or save more) for retirement, with 53 percent of U.S. workers citing these factors, according to findings from the 2014 Retirement Confidence Survey, released by the nonprofit Employee Benefit Research Institute (EBRI).

"Existing debt is clearly an obstacle standing in the way of many needing to save for retirement," said Matt Greenwald, head of research firm Greenwald & Associates, which conducted the survey with EBRI. “Fifty-eight percent of workers and 44 percent of retirees say they are having a problem with their level of debt.”

"Those who are participating in a retirement plan, have calculated their savings need or worked with a financial professional are not only more confident, they have less debt and higher levels of savings," said Greg Burrows, senior vice president of retirement and investor services at The Principal Retirement Group, which co-sponsored the survey. "Having a plan for both spending and saving can help manage short-term needs and pave the way for more security in the future. The key is to take action." 

Among other survey findings reported by EBRI:

  • Workers have high savings goals. Twenty-two percent say they need to save between 20 percent and 29 percent of their income. Another 22 percent indicate they need to save 30 percent or more. Those not participating in a retirement plan, however, were more likely to set the target at 50 percent of income or to say they don’t know how much they need to save.

  • Most haven’t calculated savings needs. Only 44 percent of workers report that they or their spouse has tried to calculate how much money they will need for a comfortable retirement. But workers who have done the calculations tend to have higher levels of savings and confidence than those who have not.

  • Best laid plans. Although 65 percent of respondents expect to work for pay in retirement, just 27 percent of retirees do so. Nearly half say they retired earlier than planned because of health reasons.

  • Workers remain committed to savings, despite possible tax changes. Asked what they would do if they could no longer contribute on a pretax basis to employer-sponsored retirement plans but instead their contributions and subsequent earnings were tax-free at withdrawal—basically transforming the current 401(k) structure to a Roth 401(k) approach, as under some tax reform proposals—two-thirds (65 percent) said they would continue to contribute at their current rates.

  • Few seek financial advice; fewer take it. Roughly 1 in 5 workers and 25 percent of retirees report they have obtained investment advice from a professional financial advisor who was paid through fees or commissions. But just 27 percent of workers who obtained advice followed all of it, while more followed most (36 percent) or some (29 percent) of it. Retirees were more likely to report following all of the advice (38 percent).

"Perhaps the greatest challenge for HR professionals going forward is creating awareness among workers regarding their retirement options and continuing with educational programs and counseling," according to the Society for Human Resource Management's 2013 report HR's Role in Preparing Workers for Retirement. "As the labor force grows older overall, retirement strategies will continue to be a focal point for HR for the foreseeable future."

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Stephen Miller, CEBS, is an online editor/manager for SHRM.

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