Participants Confident In Savings Plans, Uneasy Once Money Arrives

Twenty-seven percent of the workers and half of retirees surveyed by Greenwald & Associates say they are very satisfied with the retirement program offered by their employer. Additionally, more than half of workers and two-thirds of retirees rated the communications they received about their plan benefits either excellent or very good, according to the Society of Actuaries and the American Academy of Actuaries Retirement Plan Preference Survey.

The level of communication coming out of their plan regarding retirement planning was also rated favorably by the survey sample. Roughly four in 10 workers and six in 10 retirees rate the information they received on retirement planning excellent or very good. Nearly the same amount, 43% of workers and 50% of retirees, report the plans’ effectiveness in helping to ensure they have enough money for retirement as excellent or very good. This may be due in large part to a proactive stance take by the employer as 44% of workers and 45% of retirees rate the level of employer encouragement for them to save for retirement excellent or very good.

Knowledge Lacking

Even with these warm fuzzies, workers show a considerable lack of knowledge when asked about the details of their retirement plan. Half of workers with a defined contribution plan and one-third of workers with a defined benefit plan say they are unable to estimate their eventual retirement benefit. Continuing on this trend, the report found 33% of workers with a defined contribution plan and 40% with a defined benefit plan say they do not understand their plan well enough to estimate their current termination benefit and 25% of workers with a defined contribution plan and 20% with a defined benefit plan admit they do not know when they would be able to access their termination benefit.

Despite their shortcomings about plan knowledge, given a choice of equal value, two-thirds of workers overall – 57% of workers with a defined contribution plan and 71% of those with a defined benefit plan – indicate a preference for taking their retirement income as a life annuity. Just 12% say they would prefer to receive a lump sum. Following in that trend, regardless of what plan type they currently have, workers who expect to receive a monthly benefit payout are more likely to report being very satisfied with their retirement program than those who expect to receive a lump sum payout (35% versus 26%).

Once the rubber hits the road, though, both workers and retirees are generally confident about their ability to manage their investments in retirement, yet confidence declines as the focus of the question becomes more specific:

• confidence in ability to manage their investments during retirement (31% of workers and 35% of retirees are very confident);
• confidence in ability to allocate their investments and savings among different types of investments (21% of workers and 24% of retirees are very confident)
• confidence in ability to keep the value of their savings growing at least as fast as inflation (18% of workers and 23% of retirees are very confident)
• confidence in ability to make the right decisions so as to convert a lump sum retirement balance into a stream of income that will last the rest of their lives (19% and 23% are very confident).

Though when the money is taken out, the study found many retirees may be managing their retirement savings more conservatively than necessary given their stated goals, a fact the study attributes to retirees not necessarily understanding how to manage their retirement savings. This may be due to the fact that workers are most likely to expect to receive the largest share of their retirement income from their employer's retirement plan. One-third of workers overall expect to receive more than half of their retirement income from their employers' plans, although those with a defined contribution plan (25%) expect to rely less on this source than do those with a defined benefit plan (46%).

Among the conservative options taken, one-third of the retiree pool tries to maintain the amount of their savings and investments each year by living off only the earnings or other sources of income. Another three in 10 try to increase the amount of their savings and investments each year, while 27% do not mind gradually reducing the total amount of money in their savings and investments if it is needed to maintain their lifestyle. Relatively few retirees convert all or part of their lump sums to guaranteed monthly income through the purchase of an annuity.

Not surprisingly then, when choosing a payout option from their retirement plan, 69% of workers and 86% retirees say they are primarily concerned with ensuring their money will last throughout their lifetime. Control and access to plan dollars also rated high among primary concerns:

• Ensuring they do not outlive their money during retirement (69% of workers and 77% of retirees)
• The ability of the income to keep up with inflation (65% of workers and 75% of retirees)
• Being able to maintain control of their retirement savings (61% of workers and 54% of retirees)
• Having money they can access for emergency purposes (38% of workers and 30% of retirees)
• Being able to leave money to heirs from their retirement savings (31% of workers and 19% of retirees).

The eight-page surveys were mailed on February 14, 2003, to 1,088 workers and 1,889 retirees. A total of 815 questionnaires from workers and 624 questionnaires from retirees were returned by February 28, 2003 for response rates of 75% and 33%, respectively. A number of questionnaires with incomplete data were later discarded, reducing the number of completed returns used for analysis to 790 for workers and 600 for retirees and lowering the response rates for usable returns to 73% and 32%, respectively.

A copy of the complete report can be found at www.soa.org/sections/Retirement/retirement_risk_report/PreferencesReport2-5_FINAL_V2.pdf .