Data and Research March 19, 2015

Younger Workers Lack Feeling of Control over Retirement

Fifty-five percent of Americans younger than 30 feel not saving enough could be the greatest setback on their path to retirement.
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Nearly half of Americans younger than 30 (49%) do not feel in control of determining their retirement date, according to the latest COUNTRY Financial Security Index survey.

Among this group, nearly one-third (31%) say that their retirement date is “not at all” in their control.

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Reaching a savings goal is the number one concern Americans have regarding their ability to retire, especially among those younger than 30. Nearly half (49%) of Americans feel not saving enough could be the greatest setback on their path to retirement. This number rises to 55% for those younger than 30.

“Fear of the unknown is understandable, younger Americans may be jaded by the slow recession recovery and uncertainty surrounding social security,” says Joe Buhrmann, manager of Financial Security Field Support.

Saving and choosing a retirement age are vital retirement-planning steps, but factoring in how long you will live during retirement should also be added to your plan, according to Buhrmann. People may not be adequately estimating how long they will live in retirement. The majority of Americans (69%) anticipate living more than 15 years in retirement; however, 26% of those younger than 30 anticipate living 30 years or longer in retirement.

"Your retirement plans includes saving, choosing a realistic age and then predicting how long you will live; all three steps are reliant on each other," says Buhrmann.

The survey found the majority of retirees say living the retirement dream is achievable. Many envision an early retirement, but waiting correlates with higher retirement satisfaction, perhaps due to the ability to save longer.   Retirees ages 65 and older are significantly more likely (79%) to say they are living the retirement of their dreams. Early retirees ages 50 to 64, are much less likely (51%) to say they're living their dream retirement.

Retirees with a higher income are also more likely to say they're living the retirement of their dreams, although satisfaction does not rise exponentially with income. Among those with a retirement income of $50,000 to $75,000, a large majority (82%) are living their ideal retirement. Retirement satisfaction peaks among those with a retirement income greater than $75,000 but less than $100,000, with 91% of individuals in this income group living the retirement of their dreams.

The COUNTRY Financial Security Index was created by COUNTRY Financial and is compiled by GfK, an independent research firm. Surveys were conducted using GfK's KnowledgePanel, a national, probability-based panel designed to be representative of the general population and includes responses from approximately 1,000 U.S. adults for national surveys.

Survey data, videos and analysis are available at www.countryfinancialsecurityblog.com.

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.

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