Data and Research February 21, 2017

Parents, Grandparents Willing to Forego Spending to Save for Retirement

However, many have tapped into their retirement savings to help their families out.
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Parents and grandparents are keeping their sights on their retirement needs as well as raising their children—and to do so, they are willing to forgo treating themselves to life’s little luxuries, according to the TD Ameritrade Parents and Grandparents Retirement Survey.

Only 20% of Boomer grandparents and 12% of Millennial parents are willing to spend less on their children. Just 15% of parents would be willing to have fewer children.

These priorities come with personal trade-offs. Forty-nine percent of parents and 54% of grandparents think it makes sense to live a simpler lifestyle—and 36% of parents and 32% of parents would delay retirement—in order to ensure they have enough retirement savings to support themselves.

Forty-six percent of parents and 49% of grandparents would cut back on eating out and entertainment. Thirty-nine percent of parents and 45% of grandparents are open to buying a used car, 29% of both generations would cut back on vacations, and 36% of parents and 32% of grandparents would live in a smaller home.

“It’s encouraging to see that both generations of parents recognize there are trade-offs and are willing to make them in order to keep their retirement plan on track,” says Matthew Sadowsky, director of retirement at TD Ameritrade. “But it can be easier said than done, and to put this into practice, parents should take a hard look at what they’re truly comfortable scaling back on, if need be.”

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Sixty percent of parents and 52% of grandparents have dipped into their retirement savings to help their family out. The reasons why have been for emergencies (20% of parents and 24% of grandparents), household bills (16% and 17%), medical expenses (13% and 11%), and vacations (10% and 4%).

“Tapping into retirement accounts early can put your retirement at risk, and for those parents serving as the ‘family bank,’ this could negatively impact the whole family,” Sadowsky says. “Retirement saveres are able to stay the course and stay disciplined by taking a few fundamental steps, including: setting aside an emergency fund so they don’t need to tap into their retirement nest egg and developing a clear financial plan that can help protect and potentially grow their nest egg. People with a financial plan are three times as likely to be confident they will reach their retirement goals.”

The survey also found that parents who are saving for retirement have an average account balance of $79,000, while grandparents have $338,000. One-third of both generations are confident they will reach their retirement savings goal.

Head Solutions Group conducted the online survey of 2,018 adults in October for TD Ameritrade. The full survey can be downloaded here.

Data and Research February 21, 2017

Multiemployer Plans Have Some Successes

Account balances in multiemployer DC plans have grown, and the funded percentage of multiemployer DB plans has improved, a study shows.
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A new report, The Multiemployer Retirement Plan Landscape: A Ten-Year Look (2005-2014), from Horizon Actuarial Services, LLC, and the International Foundation of Employee Benefit Plans (IFEBP), shows average account balances in defined contribution (DC) multiemployer retirement plans have grown over the past decade, along with contributions and investment returns.

The average account balance for a participant in the median multiemployer defined contribution (DC) plan was about $38,200 at the end of 2014, up from about $36,100 at the end of 2013. In 2014, these DC plans saw a median investment return of 5.6%. Rates of return were volatile over the last decade. The median annualized return from 2005 to 2014 was 5.3%.

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For multiemployer defined benefit (DB) plans, investment returns over the past decade were also volatile—marked by the financial collapse in 2008, when the median investment return for multiemployer DB plans was -23.5%. However, the median annualized return was about 5.6% over the 10-year period from 2005 through 2014. The 2014 median investment return was 6.3%, slightly below the 7.5% median return assumption.

As of December 31, 2014, the median funded percentage for multiemployer DB plans was 85.9% (based on the market value of assets). This was a significant improvement over the median funded percentage at the end of 2008, which was 67.6%, and approached the median funded percentage of 88.7% from the beginning of 2008. The increased funding allowed more plans to enter the “green zone” under the Pension Protection Act (PPA). Sixty-one percent of funds were in the green zone at the end of 2014.

NEXT: Still challenges

Over the past decade (2005 through 2014), few plans saw increases in the number of active participants, while the number of inactive participants continued to grow. Looking over the last 10 years, in 2005 the ratio of active participants to inactive participants was 9:10—at the end of 2014 the ratio had declined to 6:10.

“Although the active-to-inactive participants ratio has remained fairly steady over the past few years, it is still considerably less favorable then it was prior to the 2008 recession,” explains Jason Russell, consulting actuary, Horizon Actuarial Services, LLC. “As plans continue to mature and their cash flows become more negative, they are relying on their investment returns to sustain them into the future.”

At the end of 2014, there were 1,380 multiemployer DB plans—1,334 plans were financially solvent, and 46 were insolvent and receiving assistance from the Pension Benefit Guaranty Corporation (PBGC). The plans had assets of more than $480 billion, and they covered 10.5 million participants and their beneficiaries.

At the end of 2014, there were 1,102 multiemployer DC retirement plans, with total assets of more than $130 billion. These plans covered 3.8 million participants and beneficiaries. The majority of plans—80%—were offered in tandem with a DB plan.

For more information on The Multiemployer Retirement Plan Landscape: A Ten-Year Look (2005-2014), visit www.ifebp.org/MultiemployerRetirement.

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