Yet, Rate of Savings Increases With Time in the Plan, Retirees Report
More Than Nine in 10 Workers Find Target Date Savings Concept
Appealing
BlackRock Retirement Expert: Plan Sponsors Need to Review Target Date
Offering, Ensure Good Match with Workforce Needs and Goals
NEW YORK--(BUSINESS WIRE)--
A nationwide poll, conducted by BlackRock, Inc. (NYSE: BLK), of 1,035
retired Americans and 1,002 American workers participating in Defined
Contribution (DC) retirement plans, has found that most workers are
failing to save as much as they could for retirement – risking the
regret now felt by retirees who had made that same mistake.
The survey, conducted in March this year, also found that nearly six of
10 workers (58 percent) currently are not saving the maximum amount of
money permitted by their 401(k) plan. At the same time, nearly three of
10 retirees (27 percent) agree they didn’t save as much in their plan as
they could have –but what’s more, nearly eight of 10 of them now regret
it.
The polls also show that, while the retirement “savings gap” remains a
troubling reality, long-term participation in a DC plan, including a
401(k), can have a significant, positive impact on retirement savings
effectiveness.
The full survey findings can be read at https://www2.blackrock.com/us/defined-contribution/news-insight/research/retirement-survey
“When it comes to saving for retirement, defined contribution plans are
evidently making a difference – a difference that we believe is more and
more vital as fewer workers are covered by traditional pensions,” said
Chip Castille, Managing Director and head of BlackRock’s US & Canada
Defined Contribution Group. “But clearly there is more work to be done
in motivating workers to make the most of the savings potential of their
DC benefit. Sufficient savings is the single most important factor in
leading to a comfortable life in retirement.
“Plan sponsors also have an increasingly urgent responsibility to ensure
that their plan’s savings options are well matched to participant needs
and goals,” he said.
Savings Critical in Sustaining Retirement Income
The polls show that many of today’s retirees are successfully meeting
the financial challenges of life post-employment. Just over half (51
percent) of retirees are confident about having enough money to live
comfortably in retirement, and about four in 10 say they are somewhat
confident they can make ends meet in retirement.
But only one quarter (25 percent) of today’s workers are confident about
having enough money to live comfortably in retirement and only 14
percent are very confident that they are saving enough now to get the
monthly income they want in retirement.
Importantly, about eight of 10 retirees polled report having pension
income, but defined benefit plans cover just 53 percent of the workers
polled.
“For many retirees, secure pension income is a major factor supporting a
sense of financial stability and confidence in retired life,” Castille
said. “One of the key challenges of the DC system is to ensure that
workers are accumulating the savings that they’ll need to generate a
meaningful level of retirement income – income that, in most instances,
will no longer be automatically delivered to them via a defined benefit
plan.”
“Lessons Learned”: Max Out Savings
When it comes to the retirement savings exercise, as well as planning
for retirement generally, 92 percent of workers believe they have
something to learn from the experiences of today’s retirees.
Many retirees practiced good “planning behaviors” when working, but many
did make some mistakes along the way, particularly in the area of saving.
Nearly one in three retirees say they didn’t make a financial plan for
saving for retirement early enough in their work life and, of those,
about eight of 10 regret it (32 percent call it a major regret).
“When it comes to ‘lessons learned,’ the message from today’s retirees
to today’s workers is straightforward: Make a plan for retirement saving
early and, above all, save as much as you possibly can,” Castille said.
Closing the Retirement Savings Gap
In the crucial area of savings, workers preparing for retirement have
clearly fallen behind the curve. The difference between what people have
saved and what they need to save for retirement is estimated at $6.6
trillion1.
Retirement savings behaviors need to be strengthened, yet the poll
suggests that DC retirement plans are starting to fulfill much of their
promise as critical savings vehicles. Nearly half of workers strongly
agree that their plan provides an easy way to save; 46 percent strongly
agree that their plan offers an incentive to save via the company match.
Long term participation in a DC plan can have a significant impact on
retirement savings, the BlackRock poll shows. Among retirees, those who
spent more than 20 years in the DC system are more likely than those
with less time (5-10 years) to say that they saved the amount of money
permitted annually by their plan (79 percent vs. 62 percent).
“The positive impact that DC has on retirement saving builds over time,”
Castille said. “We need to get workers into the DC system as soon as
possible and maintain their maximum participation throughout their
working years.”
Finding the Right Savings “Fit”: Target Date Funds
With DC playing a growing role in the retirement savings process, one
increasingly prevalent savings tool will be the target date fund – a
fund with a variety of investments automatically rebalanced and
reallocated over time seeking to become more conservative, and lower the
chance of losing money as the worker nears their planned retirement age.
About 80 percent of DC plan sponsors currently offer target date funds,
according to a separate poll of 118 sponsors conducted by BlackRock.
More than nine of 10 workers find the target date fund concept appealing
– and about one third very appealing. Younger workers, age 25 to 34, are
even more likely to find the concept very appealing (44 percent) than
workers age 55 to 59 (29 percent).
Following the passage of the Pension Protection Act (PPA) in 2006 and
the Department of Labor’s validation of the target date fund concept by
accepting them as a qualified default investment alternative (QDIA),
plan sponsors now have a mechanism for effectively “jump starting” the
savings process for participants by automatically enrolling them in such
funds.
The BlackRock poll suggests that workers welcome the development: More
than six of 10 workers indicated they would react positively if their
employer automatically moved their retirement assets into a target date
fund, and about the same number of retirees said their reaction would
have been the same.
Indeed, many workers would be comfortable with an employer taking
“automatic” support for savings even further: Nearly four of 10 say they
would be willing to have an employer automatically increase annually the
amount of retirement savings deducted from a paycheck. A similar
percentage of retirees indicated they would have been comfortable with
their employer taking this step during their working years.
Castille: Critical for Sponsors to Choose Target Date Fund with Care
As the poll suggests, today’s workers have strongly embraced the target
date concept – making it all the more critical for plan sponsors to be
painstaking in their selection of a target date option. “Sponsors need
to ensure that they are employing a target date strategy that is well
aligned with the distinctive characteristics of their workforce as well
as their overall goals for the plan,” said Castille.
With target date funds becoming more widely used, fundamental
differences in target date strategies have emerged, Castille noted.
“It’s critical that plan sponsors are aware of the impact these
differences can have on their participants’ retirement savings,
particularly as DC plans continue to emerge as a top savings vehicle,”
he said.
According to Castille, sponsors need to recognize that target date funds
have varying objectives and investment approaches that can impact
investment performance as well as a fund’s suitability for a particular
participant population. “Sponsors should consider whether their
workforce has unique needs – based on age, for example - that might
benefit from a customized solution,” he said.
“Perhaps most importantly, sponsors need to assess the characteristics
and attributes of potential product providers, and be sure to seek out a
provider offering the requisite flexibility, sound investment process,
track record of innovation and performance, and commitment to supporting
employee participation,” he said.
“Not all target date funds are created equal,” Castille said. “Proper
due diligence aligned with good understanding of plan and participant
realities can help a sponsor ensure that their target date fund well
supports their employees’ essential savings objectives.”
For more information on the BlackRock survey, please visit
www.BlackRock.com/RetirementSurvey.
The surveys of 1,035 retirees and 1,002 workers were conducted on the
Internet during March 2012 by Boston Research Group on behalf of
BlackRock’s U.S. Defined Contribution business. BlackRock also polled
118 executives managing DC plans, in an Internet survey conducted during
that same month. All of the retirees and workers polled
have had at least five years of participation in a workplace retirement
savings plan. The samples of 1,035 retirees and 1,002 workers each have
a maximum sampling error of +/- 3.1 percentage points at a 95 percent
confidence level.
1Source: Center for Retirement Resource at Boston College.
About BlackRock
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June 30, 2012, BlackRock’s AUM was $3.560 trillion. BlackRock offers
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additional information, please visit the Company's website at www.blackrock.com.
The opinions expressed are as of September 19, 2012 and may change as
subsequent conditions vary. The information and opinions contained in
this material are derived from proprietary and non-proprietary sources
deemed by BlackRock to be reliable, are not necessarily all inclusive
and are not guaranteed as to accuracy. There is no guarantee that any
forecasts made will come to pass. Reliance upon information in this
material is at the sole discretion of the reader.
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© 2012 BlackRock, Inc. All rights reserved.
Media Relations:
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Source: BlackRock, Inc.