NEW YORK--(BUSINESS WIRE)--American workers are increasingly confident about their prospects for a financially secure and satisfying retirement – but many are not prepared for a coming period of lower investment returns forecast by the financial services industry, according to the latest DC Pulse Survey from BlackRock (NYSE:BLK), released today. BlackRock surveyed more than 1,000 participants in defined contribution (DC) retirement plans and more than 200 plan sponsors.
The positive news is that the potential retirement savings gap is not insurmountable and deliberate measures including plan design and investment changes by DC plan sponsors and participants alike can get participants back on track.
Some Flawed Assumptions
More than half (56%) of plan participants believe they are on track to retire with the lifestyle they want and nearly seven in 10 expect to be able to save enough to meet their financial goals in retirement. However, participants’ optimism might be based on some flawed assumptions about future investment returns.
New consensus forecasts by Horizon Actuarial – based on a survey of 35 financial industry firms (including BlackRock) – suggest that, for the foreseeable future, stock and bond returns could be half that of recent decades. Yet, 66% of workers believe that over the next decade, returns on their savings will continue to be in line with what they have experienced in the past, while 17% believe they will experience even higher returns.
“Though plan participants are feeling positive about their retirement prospects, it’s critical that they understand how investment market realities are likely to demand significant adjustments in their retirement planning,” said Anne Ackerley, head of BlackRock’s U.S. and Canada Defined Contribution group. “If equipped with accurate information about what they’re up against – and good tools for meeting those realities – they can be much better positioned to take the right action steps to ensure a financially secure retirement.”
BlackRock offers DC plan sponsors and participants the following tips for meeting a low-return market environment:
For Plan Sponsors:
- Maximize plan design tools – including auto features and reenrollment – to improve participant outcomes.
- Revamp strategic communications to target participants at different life stages, whether they are nearing retirement or just beginning their careers.
- Restructure the company match and consider additional contributions to help manage the effects of reduced future returns.
For Plan Participants:
- Save more. Saving enough just to meet your company’s match likely won’t be enough. Increase your savings rate and opt in to auto-escalation, that is, automatic, regular increases in that rate.
- Use time wisely. If you haven’t started saving yet, get started. Time helps investments do their work by compounding returns and potentially subsidizing savings balances.
- Know what you’re on track for. It’s critical to understand how a savings lump sum today will translate into an income stream tomorrow. Use an income calculator to measure the gap between what you are on track to save and what you may need in retirement.
Retirement Confidence on the Rise, But Low Returns Pose Risk
Compared with last year’s DC Pulse survey, retirement confidence is increasing, with participants more likely to describe themselves as “on track” for retirement (56% vs. 52%), as well as “confident” (18% vs. 11%) and “optimistic” (22% vs. 17%).
Yet many seem to not recognize that a coming “low returns” environment could throw a wrench into their planning. Nearly two thirds (65%) of workers report they are unaware that industry expectations for future returns are notably lower than what they had seen or experienced in the past.
Interestingly, many plan sponsors also have misperceptions about the likely return environment for retirement assets. Seventy percent of sponsors believe the annualized market returns for U.S. stocks over the next 10 years will be the same as or higher than the past. The same goes for bonds: 78% believe bond returns will remain consistent or be higher than they have been previously.
In the face of the new returns information, the confidence of both workers and sponsors slips. When presented with the forecasts, 39% of participants indicate they feel very or extremely concerned. Regarding the effectiveness of workers’ retirement planning, the survey shows that workers become less confident when it comes to such issues as whether they are saving enough to get a desired monthly income (32% confident vs. 44% initially) and taking an appropriate level of risk to meet retirement goals (33% vs. 53%). Similarly, the confidence of sponsors that workers are saving enough for the income they want drops 11 percentage points (to 38% from 49%).
Perhaps most concerning is that 70% of participants (as well as 54% of sponsors) say they do not expect to do anything different in the next 12 months to prepare for potential lower returns.
“Most plan participants simply have not come to terms with the dramatic impact that a low-return environment could have on their retirement savings,” said Ms. Ackerley. “The reality is that in order to accumulate the same amount of money that participants built in previous years by contributing 6% of their earnings, workers may need to contribute double or even triple that amount going forward.”
Making a Difference: Sponsors and Participants Can Partner
to Help Increase Retirement Savings
Both sponsors and participants separately suggest that, to some extent, it is the other group’s responsibility to address the issue. Nearly six of 10 participants (59%) rate “increasing the company match” on their plan contribution as the most helpful thing their employer could do to address the low-return environment, while 45% of sponsors say they would encourage participants to save more.
In BlackRock’s view, there are tools available that sponsors and participants can utilize to ensure that the emerging realities of low returns do not wreak havoc on workers’ retirement goals.
“Driving increased savings and maximizing the target date fund option in DC plans can make a meaningful difference in workers’ retirement planning,” Ms. Ackerley said. “In particular, target date funds are an indispensable tool for ensuring that participants are properly invested according to their particular life stage as well as market conditions.
“Getting better prepared for low returns is critical for both sponsors and participants, and sponsors have an especially crucial role to play in optimizing plan features that can best help participants save and invest for retirement with an eye toward the challenges of the future,” she said.
BlackRock is a global leader in investment management, risk management and advisory services for institutional and retail clients. At December 31, 2016, BlackRock’s AUM was $5.1 trillion. BlackRock helps clients around the world meet their goals and overcome challenges with a range of products that include separate accounts, mutual funds, iShares® (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®. As of December 31, 2016, the firm had approximately 13,000 employees in more than 30 countries and a major presence in global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa. For additional information, please visit the Company’s website at www.blackrock.com | Twitter: @blackrock_news | Blog: www.blackrockblog.com | LinkedIn: www.linkedin.com/company/blackrock
About the Survey
The BlackRock DC Pulse survey is a major research study of more than 200 large defined contribution plan sponsors and more than 1,000 plan participants in the U.S., executed by Market Strategies International, an independent research company. All respondents were interviewed using an online survey from 11/29/16 to 12/20/16. Plan sponsors have at least $300 million in assets, with nearly half of the respondents serving in benefits or human resources roles, and the rest in finance, investment or business management for their organizations. Plan participants are employed full-time and participating in their employer’s 401(k) or 403(b) plan, with at least $5,000 in assets in their current account. For the plan sponsor sample, the survey’s margin of error is +/- 6.9 percentage points; for the plan participant sample, it is +/- 3.1 percentage points.