Data and Research March 19, 2015

Should Employees Add an IRA to Savings Mix?

Research finds Americans hold a variety of saving and investing priorities that all compete for a piece of the paycheck, from short-term savings to IRAs and employer-sponsored defined contribution plans.
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The fourth annual TIAA-CREF IRA Survey finds 24% of Americans report adding to short-term savings is their most important financial priority when deciding how to allocate assets.

“This is three-times the number who said contributing to an individual retirement account [IRA] is their first priority, and in parity with the number (25%) who said they would prioritize contributing to an employer-sponsored retirement plan, such as a 401(k) or 403(b) plan,” TIAA-CREF researchers explain.

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The research finds an “alarming number of people” don’t have access to a 401(k) or a 403(b) plan through work—especially given just 8% of people said they prioritize putting money into a private IRA.

“Considering these findings, it may not be surprising that a significantly low number of respondents (only 18%) report that they are currently contributing to an IRA,” TIAA-CREF says. “Another 14% say they have an IRA, but they are not currently contributing anything to it.”

TIAA-CREF says the survey results point to an important opportunity for retirement plan sponsors and advisers to impart better knowledge about the benefits of tax-advantaged savings, whatever the form of the account.

“Americans may be unaware of the benefits of having both an IRA and a 401(k) or 403(b),” the researchers add. “Of respondents who said they would not consider contributing to an IRA, 28% said they would not consider it because they already have a 401(k) or a 403(b) and don’t need an IRA.”

TIAA-CREF warns this thinking is flawed, given the shift away from guaranteed income through defined benefit plans and forecasts for increasingly long lives and expensive retirements. Researchers point to the Pension Rights Center’s recent report, published in conjunction with a U.S. Senate committee hearing, which calculates the total U.S. retirement income deficit to be as much as $7.7 trillion.

Further, respondents who have an IRA in addition to an employer-sponsored retirement plan appear to be making good decisions about how to use them, leading to increased retirement security. For example, 33% who are currently contributors to their IRA are getting their maximum employer match before contributing to an IRA. Additionally, 12% are maximizing contributions to their employer plan before contributing to an IRA, up from 9% last year.

Overall, 44% of those who are currently contributing to an IRA in addition to a 401(k) or 403(b) say they are contributing to their IRA regularly.

“That’s good news only if those individuals are first maximizing contributions to their employer plan and receiving the maximum employer match,” the researchers warn. “An adviser can help ensure that an individual is allocating savings appropriately for maximum benefits.”

Doug Chittenden, executive vice president, individual business for TIAA-CREF, says that once people know about IRAs and understand the difference an IRA can make, they tend to take advantage of this option.

“An alarming number of people don’t have access to a 401(k) or a 403(b) plan through work,” Chittenden adds. “But, for those who do, even though an employer-sponsored plan and an IRA can each stand alone as an effective retirement plan option, it’s important to consider an IRA as part of a mix of savings choices. Among other benefits, an IRA is a great investment option after maxing out 401(k) contributions.”

It’s important to get sound advice on how these options work best together, Chittenden adds, and it will be important for advisers and sponsors to track how any updated fiduciary rule language from the Department of Labor could impact IRA rollover advice and related education.

Other survey findings reveal a growing number of Americans are leaving assets in 401(k) and 403(b) plans with their former employers, in part because a lack of advice and knowledge.

“This year, 30% of respondents said they have left assets in one or more 401(k) or 403(b) plans at a previous employer, up from 22% in 2014 and 15% in 2013,” researchers explain. “Thirty percent say they have done so because they are satisfied with their past employer’s retirement savings option.”

However, nearly a quarter of respondents (23%) said they didn’t know a rollover was an option; and 20% said they didn’t know what to do, so they left their money in their past employer’s plan. Another 15% said they haven’t rolled over their previous plan assets due to lack of time.

“Ironically, while 15% of respondents noted concern over lack of time to roll over an employer-sponsored plan, 30% of respondents said they expect an IRA rollover to be the least time-consuming among a list of tasks that included renewing a driver’s license, getting a dental cleaning, cable installation and a home closing,” researchers conclude.

More results from the TIAA-CREF 2015 IRA Survey Executive Summary can be downloaded here. The survey was conducted by KRC Research by phone among a national random sample of 1,013 adults, age 18 years and older, from February 19 to 22, 2015, using a combination of landline and cell phone interviews.
Participants March 18, 2015

Employee Financial Stress Levels Creep Higher

Sixty percent of employees are significantly burdened by financial woes, a survey finds.
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Student loan debt, mortgages and health care costs are the biggest financial stressors for workers, according to the State Street Global Advisors (SSgA) retirement survey, which finds no age group is immune to financial stress.

In addition, many employees expressed an unsettled feeling of not having done enough to prepare for retirement.

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It’s common knowledge that financial concerns are usually top of mind for individuals and families, says Fredrik Axsater, global head of defined contribution at SSgA, but the survey’s findings demonstrate the level of concern individuals have about finances.

“Financial and workplace stressors have the greatest impact on work quality and productivity, which confirms what we are hearing from employers—we need to address workplace financial demands beyond retirement savings,” Axsater maintains. “A more holistic approach is needed, providing tools and opportunities for employees to reduce stress and improve their financial well-being.”

At risk, Axsater says, is workplace productivity, which suffers when employees are financially troubled. The survey underscores the importance of financial wellness, which is now part of nearly all conversations with employers. When employees have the resources and tools to help them improve their financial lives and alleviate daily financial stress, he points out, plan sponsors are then able to refocus their employees’ attention to retirement savings. “A holistic approach creates the opportunity to address roadblocks to retirement readiness while increasing engagement around financial well-being,” Axsater says.

Overall financial well-being is a challenge, the survey found, with a significant number of survey participants pointing to rips in their safety nets. More than half were confident they could pay for a financial emergency that required up to $1,000. But just fewer than half acknowledged living paycheck to paycheck—implying that a large financial setback would have a serious impact.

For most, the heaviest debt burdens are mortgages, car loans and credit cards. Debt patterns shift through life phases from auto/student loans to credit cards to a mortgage. For most, loans for their children’s education are among the last loan challenges.

Most respondents cited high cost and lack of convenience as the top the reasons for not engaging in a financial wellness program.

Survey findings included:

  • Nearly 60% of employees are emotionally stressed and distracted by their financial situations;
  • Nearly 50% live paycheck to paycheck;
  • 37% acknowledged financial stress has caused their productivity at work to suffer; and
  • 25% have missed work because of stress from a personal financial situation.

SSgA, the investment management business of State Street Corporation, surveyed approximately 1,000 employees between the ages of 20 and 69 for its semi-annual employee retirement survey, conducted online by TRC Market Research from January 7 to January 11. The median age of respondents was 45; 48% were male and 52% were female; and 90% of respondents were employed full time.

More insights about the survey are available on State Street Global Advisors’ website.

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