A nationwide poll conducted by BlackRock leads to findings that illustrate the problem of insufficient savings for retirement.
The survey of 1,035 retired Americans and 1,002 American workers participating in defined contribution plans found that most workers are failing to save as much as they could for retirement. It also found that nearly six of 10 workers (58%) 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%) agree they didn’t save as much in their plan as they could have. What’s more, nearly eight of 10 of them now regret it.
The poll also shows 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,” according to the company.
“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,” Chip Castille, managing director and head of BlackRock’s U.S. and Canada Defined Contribution Group, said in a statement. “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.”
It also finds that many of today’s retirees are successfully meeting the financial challenges of life post-employment. Just over half (51%) 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%) of today’s workers are confident about having enough money to live comfortably in retirement and only 14% 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% of the workers polled.
When it comes to the retirement savings exercise, as well as planning for retirement generally, 92% 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% call it a major regret). 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 trillion.
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% 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% vs. 62%).
“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.”