A nationwide survey of retirement plan participants confirms that employer-sponsored retirement plans are hugely important to the workers who participate in them, but most are not maximizing the savings power of these plans to their full potential, ING Retirement Research Institute said Friday in announcing the results. The research found that plan investors often fail to recognize the potential long-term benefits that even a small contribution rate increase can produce in helping them successfully reach their retirement goals.
Of the 1,000 workplace retirement plan participants in the survey, nearly two-thirds said their employer-sponsored retirement plan accounts for all or most of their retirement portfolio.
At the same time, they are not confident in the future of Social Security. According to the survey, 51% think it is more likely that scientists will clone dinosaurs in their lifetime than it is that Congress will save Social Security, and 77% of those with offspring at home say their child is more likely to catch a foul ball in the seats at a baseball game than cash a Social Security check.
According to ING, the findings suggest that even though workers may acknowledge the retirement saving challenge, they have not necessarily improved their saving behaviors, at least not in their employer-sponsored retirement plans. Of those participants not contributing the maximum to their retirement plan, 87% admitted they could afford to increase their annual contribution by 1% of their annual salary; 59% said they could boost their contribution by 3% of salary; and 32% said they could afford a 5% increase.
ING's survey also indicated that plan participants lacked a clear understanding of contribution rates and the lifetime value of even small increases. For many workers, setting workplace retirement plan contribution rates appeared to be either a guess or a back-of-the-envelope calculation. Very few said they consulted outside resources in determining their contribution levels. Nearly two-thirds determined their contribution rate themselves, and one in five said they "go by gut feeling."
When asked to estimate the lifetime value of a 2% increase in their contribution rate, only a small percentage could even come close to a correct answer. More often, they miscalculated, with 40% underestimating by 50% or more and only 32% overestimating by 50% or more.