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The roots of retirement uncertainty: Not knowing how much to save

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Only about half (52 percent) of individuals participating in defined contribution (DC) retirement savings plans believe they are “on track” for retirement, but retirement confidence is within reach for many more, according to a DC Pulse Survey by BlackRock.

In BlackRock’s 2016 survey of 1,003 Defined Contribution (DC) plan participants, 28 percent report feeling “unsure” about whether they are on track for retirement. But the survey revealed that when individuals are uncertain about where they stand, it’s often because they simply have not taken action on a few fundamental steps toward sound retirement planning, like determining exactly how much money they need to set aside and understanding how to generate income in retirement from their accumulated savings.

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For example, people “unsure” about their retirement prospects are much more likely than those “on track” to admit that “I don’t know as much as I should about investing for my retirement” (66 percent vs. 38 percent) and “I don’t know how much money I need to save in order to fund the retirement I want” (68 percent vs. 32 percent).

Simple Steps Make a Big Difference

“Unsure” participants also are less likely to be taking proactive steps to improve their knowledge; for example, just 11 percent of those “unsure” have calculated the amount of money to set aside now for retirement (compared with 35 percent of those “on track”). Similarly, just a quarter of “unsure” individuals have developed a good sense of how to generate ongoing retirement income from their savings (vs. 68 percent of people “on track”).

“Our survey shows that taking a few simple steps with a DC plan can make a considerable difference for successful retirement preparation,” says Anne Ackerley, head of BlackRock’s U.S. & Canada Defined Contribution Group. “For many participants, moving from retirement uncertainty to confidence is a matter of education and resolve: learning more about your precise savings and income needs, and developing a plan to get there.”

According to BlackRock’s analysis, the link between a basic understanding of key retirement planning principles and retirement confidence holds true for people at all income levels, suggesting that such confidence is not simply a function of greater financial resources.

“Unfortunately, many individuals who consider themselves ‘off track’ face financial realities requiring support beyond their DC plan,” says Ackerley. “But the good news is that people who are unsure about their retirement standing may be able to build their confidence with relative ease by working in the near term to close critical knowledge and saving gaps.”

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Women are more “unsure”

Among individuals who said they are “unsure” about being able to retire the way they want to, two-thirds are women. In fact, significantly more women said they are “unsure” about their retirement than said they felt “off track” (33 percent vs. 21 percent).

Women’s general sense of unease about retirement also translates to lower levels of confidence and retirement preparedness: They are less likely than men to report feeling confident about being able to retire by the age they want to, handle unexpected costs in retirement and enjoy the lifestyle they want.

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“Unfortunately, the uncertainty that women feel regarding retirement seems only to have hindered their retirement savings and readiness,” says Ackerley. “The challenge now is to help female plan participants understand that there is a blueprint for getting on track.”

Women’s use of DC plans

Indeed, women who are “unsure” about their retirement acknowledge they could be taking greater advantage of retirement tools and resources at their disposal, particularly those available in their DC plan. “Unsure” women are more likely than “unsure” men to agree that they don’t spend the time they should to understand their employer’s retirement plan (55 percent vs. 41 percent). And they don’t feel they are doing as much as they should with their plan (57 percent vs. 42 percent).

But women generally also put a very high value on their workplace plan. They are significantly more likely than men to say that their plan will be extremely or very important to ensuring a secure retirement (74 percent vs. 66 percent) and that it will be their biggest source of retirement income (58 percent vs. 51 percent).

“Clearly, there is a strong disconnect between how women are using their workplace plan and their expectations for its role in their retirement security,” said Ackerley. “Importantly, we can bridge this gap by encouraging plan sponsors to help their participants better understand their plan features and take full advantage of the many retirement resources already available to them.”

The conflict at the heart of U.S. retirement plans

Plan engagement lags

Across the board, “unsure” individuals are less likely than “on track” participants to engage with their DC plan, the survey notes, highlighting a key opportunity for people lacking retirement confidence to move into the “on track” camp.

Those “unsure” are less likely than those “on track” to say that they take full advantage of retirement savings guidance provided by their employer (43 percent vs. 67 percent). They also are less likely to have increased their contribution in the past 12 months (35 percent vs. 47 percent).

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They additionally report less engagement in evaluating their investment options (25 percent vs. 38 percent) and are less likely to report that they evaluate their investment options at least quarterly (29 percent vs. 50 percent).

“Our survey shows that plan engagement is a key vehicle for boosting retirement confidence; that’s a critical message for plan participants and sponsors alike,” says Ackerley. “Individuals need to take greater advantage of the tools already available to them through their plan.

“Plan sponsors can feel confident that adding more and better tools for their DC participants is a worthy effort because a robust, participant-focused DC plan really does have the power to make a difference,” Ackerley adds.

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