Where Do you Go for Financial Advice?
How do you decide how much to set aside for retirement? You might sit down, figure out your budget, and set aside whatever is left over. Or, maybe you let your employer set the pace, by contributing only to the level of your company match. For example, if your employer matches the contributions you make up to 6% of your pay, do you contribute only 6%? Do you know how much you can contribute?
It should come as no surprise that most participants contribute to the level of the company match. Generally speaking, that is viewed as a positive result—as a sign that workers understand the mechanics of the match, appreciate its value, and recognize its importance in retirement savings.
However, there is also evidence that participants may be using the level of the match as a company-sanctioned benchmark for how much they should save—and may even view that as a maximum savings cap. For example, nearly half (47%) of 750 participants in a recent CIGNA Retirement & Investment Services survey said they were contributing the maximum amount allowed by their 401(k)s. Yet, industry surveys suggest that only about 11% of American workers actually contribute that much.
Possible reasons for the confusion: With all the natural emphasis on the "free money" from the company match, some workers may be assuming that the match level is the maximum they can contribute. Or, perhaps they are simply assuming that you have set the match level at the "right" level for them to save.
Whatever the reason for the confusion, this month's Know How reminds participants that they may be able to save more than they are—and hopefully spurs them to reconsider their current savings rate as we head into the second half of the year.
We hope you find it useful in communicating with your participants—and, as always, look forward to your feedback.