June 27, 2011

Recession Still Haunts Americans Saving for Retirement: JPMorgan

Most Americans ill-equipped to turn 401(k) savings into a retirement income stream

Driven by the recession hangover, most Americans have pushed aside retirement savings priorities, which rank a distant second to paying monthly bills, according to new research from JPMorgan released Monday.

And despite the fact that 401(k) plans are the only or the primary source of retirement savings for two-thirds of Americans, 45% of the 1,014 people interviewed for the online study conducted for JPMorgan by Harris Interactive said they never call or visit websites to monitor the progress of their savings.

“Driven by the recession, people are paying more attention to financial issues, but they are doing so on a near-term basis,” according to the results of the J.P. Morgan study, published in a white paper titled “Searching for Certainty.” ”Many participants remain accidental investors, those who are taking advantage of an employee benefit program without actively managing their accounts. Apparently, longer-term issues, such as saving for retirement, have been placed on the proverbial back burner.”

Companies’ declining use of traditional defined benefit (DB) plans has created problems for employees who must now perform those calculations themselves. Early Boomers now represent the first wave of retirees whose savings plans are built predominantly in the defined contribution (DC) space, and they appear ill-equipped to translate their DC balances into an income stream at retirement, the study shows.

“Paying monthly bills, credit cards and mortgages accounts for 71% of individuals’ top priorities,” said Donn Hess, managing director of product development at J.P. Morgan Retirement Plan Services in a statement. “It is extremely difficult to convince participants that retirement should be more important than any of these financial concerns. That’s why we have to make it hard for people to fail as savers and why the right 401(k) plan design is so essential to the mix. Automatic programs can make the difference between someone who can afford to retirement and someone who cannot.”

J.P. Morgan found that participants wrestling with how to make their savings last through retirement were often completely in the dark.

While 86% of respondents said they need to know how much of their pre-retirement salary they can replace, 22% aren’t sure what they are on track to receive after they stop working.  Overall, only 40% of respondents feel comfortable that they will be able to reach their financial goals in retirement

Nearly half of respondents think they'll need less than 75% of their pre-retirement income.Among respondents who had a target retirement income replacement level in mind, nearly half (45%) thought they would need less than 75% of their pre-retirement salary level. Yet, J.P. Morgan research shows that a minimum guideline for successful retirement income is a replacement ratio of 70% or more.

Other highlights of the JPMorgan study’s findings:

  • Two-thirds of respondents said they don’t know how much they should be saving for retirement
  • Nearly half of respondents are scared that they will outlive their retirement savings
  • More than two-thirds of respondents acknowledge that they don’t read the investment information that is provided to them

“Some 91% of participants agreed that they were personally responsible for their own financial futures,” said Diane Gallagher, vice president of product development for J.P. Morgan Retirement Plan Services, in a statement. “However, there’s still a significant gap between acknowledging responsibility and acting upon it.”

Read Boomer Retirement Income Smackdown: Bond Ladders vs. Annuities at AdvisorOne.com.

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