Participants November 9, 2017

401(k) Contributions a Struggle for Many Lower Wage Workers

Seventy percent of those with less than $45,000 in household income say they cannot afford to save for retirement.

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While participation in 401(k) plans is high across the board for middle-income workers, the lower their income, the less likely they are to reap the full advantages of their employer’s retirement savings plan, MassMutual found in a survey.

Overall, 84% of middle-income workers save enough in their retirement plan to receive the full match from their employer. Among those making $75,000 or more, it rises to 90%. However, for those making between $35,000 and $44,000, only 67% save enough to receive the full match, and for those in the $45,000 to $74,000 income range, it is 77%.

Seventy percent of those with less than $45,000 in household income said they cannot afford to save for retirement. For those earning $75,000 or more, only 23% share this opinion.

Other reasons why those surveyed said they do not participate in their employer’s retirement plan are lack of a compelling match or no match at all (23%), the preference to manage money outside of the plan (14%) and wanting to invest in a vehicle that provides greater accessibility to the money (14%).

Sixty percent of those who were surveyed said their employer offers a match, with 5% matches being the most prevalent, cited by 21%. However, employer matches range between 2% and 7% or more, survey respondents said.

“MassMutual’s research shows that savers with higher incomes are far more likely to contribute a higher percentage of their income and take full advantage of matching contributions,” says Tom Foster, national spokesperson for MassMutual’s Workplace Solutions. “It highlights the need for more education, especially about available strategies to help make retirement savings more affordable for more people. Employers and financial advisers need to help educate workers, especially those who may see savings as unaffordable, to find dollars and then make the most of them.”

To help participants, Foster recommends that advisers recommend automatic enrollment paired with auto escalation, as well as education through group and one-on-one meetings as well as online resources, and educational campaigns.

Foster also says that advisers can educate participants about the saver’s credit. For the 2017 tax year, a married couple that files their taxes jointly and has an adjusted gross income of no more than $37,000 can obtain a credit of 50% of their retirement savings. For those with an adjusted gross income of between $40,001 and $62,000, it drops to a 10% credit, and for those with incomes above that range, it phases out completely.

Some participants may also not be aware of the tax advantages of 401(k)s or of their employer’s match, Foster adds.
Data and Research November 9, 2017

‘Successful Savers’ Actively Engage in Retirement Planning

"Our survey results reinforce the importance of setting goals and monitoring plans to balance … emotions,” says Rich Ramassini, CFP, director of strategy for PNC Investments.

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Emotional factors play a key role in planning for life goals, as three-quarters (77%) of those planning for retirement listed living comfortably as a top goal, while 70% cited travel and 56% selected spending more time with family, according to the findings in the most recent PNC Perspectives of Retirement Survey.

However, of those considered to be “successful savers,” 72% are confident they will achieve these goals. PNC defines “successful savers” as working adults and retirees from ages 25 to 75 who reported investable assets of at least $50,000 (younger than 44) or at least $100,000 (ages 44 and older), not including funds in employer-sponsored retirement accounts.

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Most successful savers are taking the concrete steps they need to make those goals achievable. Among respondents currently participating in a retirement plan, 70% are investing with investment firms, banks and brokerage firms, and in mutual funds, and 77% regularly revisit their plans. In addition, 53% are investing in employer-sponsored retirement plans. Nearly half (45%) have been saving for at least 20 years.

Two-thirds of respondents have monitored their plan for retirement against their goals or worked with advisers to set goals.

According to the survey, 15% cited not having enough money to save the way they know they should as a hurdle to setting or meeting retirement savings goals. Eleven percent cited procrastination, 10% lack of time, 7% lack of focus and 6% fear or worry. However, two-thirds said none of these were hurdles to setting or meeting their retirement savings goals.

“We believe emotions are in play when people think about retirement,” says Rich Ramassini, director of strategy for PNC Investments. “Our survey results reinforce the importance of setting goals and monitoring plans to balance those emotions.”

More findings can be found on PNC’s website.

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