BOSTON--(BUSINESS WIRE)--Americans are dramatically underestimating their financial needs in retirement, but they don’t seem to realize it, according to a new report released today by Natixis Investment Managers. More than two-thirds (67%) of American workers with access to a workplace retirement savings plan say they expect to have enough money saved for retirement to live as they want, or at least comfortably, as long as they are careful with spending. Yet the findings show their basic assumptions – about when they can retire, how much they need to save and how long their assets will last – are flawed.
Today’s multi-generational workforce is struggling with different competing financial pressures, and they say the everyday cost of living is the biggest barrier holding them back from saving more for retirement. More than six in ten workers (64%) surveyed are looking to their employers for more education, including when and why to start saving and how to invest. Only one in four millennials say they are currently focused on retirement planning while they work toward other goals such as buying a home, having children and paying for education expenses. Meanwhile, nearly half of Baby Boomers (47%) regret not starting to save for retirement sooner, and 35% wish they had contributed more to their plan.
Natixis surveyed 1,000 American workers with access to a company-sponsored defined contribution plan across three generations active in the workforce and it found that no single generation is getting everything right when it comes to retirement. According to the research:
- The average 64-year-old Baby Boomer has accumulated just 30% of the $1 million savings they say they’ll need to fund a comfortable life in retirement. They have already extended their projected retirement age to 69, but would still need to save more than $142,000 a year to reach their stated goal.
- The average 45-year-old Gen Xer, who has saved an average of $166,328, will need to save at least $42,000 annually to retire by their stated goal of age 64 with just under $1 million.
- Millennials have started saving earlier in life for their retirement, but they also expect to retire earlier – by age 61, on average, thus extending the time over which their assets will need to be annuitized by 10%. They also have set a lower total savings goal of $822,789 to fund their retirement years, which to reach, would mean boosting their annual savings by 19%.
“The ability to live comfortably in retirement is a basic premise of the American Dream along with access to decent housing, healthcare and education. Right now, it’s just a pipe dream for many hard-working Americans who need help saving, beginning with a reality check of the assumptions behind retirement planning,” said Ed Farrington, Executive Vice President of Retirement Strategies at Natixis Investment Managers. “Financial security in retirement relies heavily on personal savings and setting long-term achievable goals; however, many Americans are increasingly suffering competition from other financial pressures. In order to lead more American workers to a secure retirement, it will require a combination of solutions to improve access to savings plans, education, advice and incentives along with a coordinated effort among individuals, employers, policymakers and asset managers.”
Need for comprehensive financial planning
The Natixis research confirms that people who contribute to an employer-sponsored retirement savings plan, such as a 401(k), save more for their retirement than those who choose not to participate. Nearly eight in ten (79%) surveyed work for employers who also match at least a portion of their contribution, and cite this incentive as the top reason for participating in the plan. Among those who don’t participate, the top reason for opting out is because their employer doesn’t offer a match or the match isn’t big enough, followed closely by having too much debt to repay.
The cost of daily living is the main obstacle holding back American workers from saving more for their retirement. Only a third (34%) contribute up to the maximum amount allowed in their plan. On average, savers contribute 6.8% of their annual income to their workplace retirement savings plan, including Baby Boomers who contribute at the highest rate (8.5%), Gen X (7.4%) and Millennials (5.7%).
In addition to daily living expenses, many workers also say they are constrained by general credit card debt (43%), housing costs (43%) and healthcare expenses (32%). Millennials have the added burden of outstanding student loans (28%) and childcare costs (20%), which they say keeps them from saving more for retirement.
Competing financial pressures and life goals not only keep annual contribution levels low, they may be why more than one in four (27%) American workers has borrowed against a workplace savings plan. Another 27% have taken a withdrawal subject to penalties, and 22% have cashed out with a lump sum distribution upon changing jobs rather than keeping the assets in a qualified plan.
Rethinking benefits in the workplace
“People have different financial pressures and goals in each stage of life. As part of the planning process, they need help incorporating saving for retirement into a larger plan that includes other aspects of their financial lives,” said Dave Goodsell, Executive Director of the Natixis Center for Investor Insight. “At the same time, employers need to rethink benefit options for a 21st Century workplace by understanding the dynamics of a multi-generational workforce. It will be crucial for companies looking to attract top talent to tailor wealth and health benefits to meet distinct generational needs.”
According to the survey, in evaluating a job offer from a new employer, workers consider a range of factors. Other than salary, the top three deciding factors are healthcare benefits, flexible working arrangements and retirement benefits, which ties with corporate culture in importance.
Tailored benefits include innovative investment options, such as alternative and income-producing assets as well as assets that align with participants’ values and priorities. Six in ten (60%) plan participants would like to see more socially responsible investment options in their workplace retirement plan. Yet just 13% of plan participants say their workplace retirement plan offers Environmental, Social and Governance (ESG) options.
Leading with education and advice
While access to a retirement savings plan is the crucial first step in helping more Americans save for retirement, Natixis found that advice, education and tools to simplify saving and investing are critical factors for maximizing plan participation. Sixty-four percent of participants in a workplace savings plan are looking to their employers for more education and guidance such as when, how and why to invest.
The survey found:
- Just 14% of plan participants know the maximum allowable contribution they can make to a 401(k) in 2019;
- Nearly two-thirds (64%) of participants age 50 or over are not taking advantage of their ability to make additional catch-up contributions above the maximum allowable contribution limit;
- Nearly four in ten (39%) participants continue to invest in the funds automatically selected for them when they first enrolled in the company plan, indicating the importance of an employer’s Qualified Default Investment Alternative (QDIA) selection. One in five (21%) do not know what type of assets or funds their retirement money is invested in.
- When asked in January and February 2019 how they felt about market volatility, 41% of participants overall – and 45% of Millennials – said they wish they better understood how volatility affects their investments. On top of that, three in ten (31%) said volatility made them realize that there were more risks to passive investing than they previously thought.
Saving for retirement through a workplace savings plan is the first exposure to investing for many American workers; however, fewer than half (48%) receive professional financial advice about investing and managing their retirement assets. Those who are advised contribute a higher percent of their annual salary to their workplace savings plan (7.2%) versus those who aren’t advised (6.5%), on average.
Plan participants say there are many solutions employers could provide to simplify participation and investment selection and incent them to save more. More than half of respondents (57%) would increase the amount they contribute to the plan if their employer also increased the company match. Outside of financial incentives offered by employers, tax incentives also are crucial, as 43% of participants say they would increase the amount they save with greater tax incentives.
Retirement reality check
While 66% of American workers are still planning to supplement their personal savings with income from Social Security, 42% also don’t believe Social Security benefits will even be available to them when they retire, suggesting overarching confusion around what sources of income retirees will actually have in retirement.
The concern is so great that a large majority of Americans are willing to support government intervention. More than half of workers (53%) believe it’s the government’s responsibility to provide universal access to a retirement savings plan, with three-quarters (75%) stating they think employers should be required to provide workplace retirement savings plans. Moreover, 54% would support a government mandate requiring individuals to save for retirement.
To download a copy of the full report, titled “Retirement reality check,” visit www.im.natixis.com/us/research/defined-contribution-plan-participant-survey-2019.
Natixis Investment Managers surveyed 1000 American workers who are eligible to participate in a company-sponsored defined contribution plan, such as a 401(k). Of the total, 700 workers are enrolled in such a program, while 300 do not participate. The age groups are broken up as follows: 503 Millennials (23–38 years old), 249 Gen X (39–54 years old) and 248 Baby Boomers (55-73 years old.) Data was gathered in January and February 2019 by the research firm CoreData.
About the Natixis Center for Investor Insight
As part of the Natixis Investment Institute, the Center for Investor Insight is dedicated to the analysis and reporting of issues and trends important to investors, financial professionals, money managers, employers, governments and policymakers globally. The Center and its team of independent and affiliated researchers track major developments across the markets, economy, and investing spectrum to understand the attitudes and perceptions influencing the decisions of individual investors, financial professionals, and institutional decision makers. The Center’s annual research program began in 2010, and now offers insights into the perceptions and motivations of over 70,000 investors from 31 countries around the globe.
All investing involves risk, including the risk of loss.
About Natixis Investment Managers
Natixis Investment Managers serves financial professionals with more insightful ways to construct portfolios. Powered by the expertise of more than 20 specialized investment managers globally, we apply Active Thinking® to deliver proactive solutions that help clients pursue better outcomes in all markets. Natixis ranks among the world’s largest asset management firms1 ($917.1 billion/€802.1 billion AUM2).
Headquartered in Paris and Boston, Natixis Investment Managers is a subsidiary of Natixis. Listed on the Paris Stock Exchange, Natixis is a subsidiary of BPCE, the second-largest banking group in France. Natixis Investment Managers’ affiliated investment management firms and distribution and service groups include Active Index Advisors®;3 AEW; Alliance Entreprendre; AlphaSimplex Group; Darius Capital Partners; DNCA Investments;4 Dorval Asset Management;5 Flexstone Partners;6 Gateway Investment Advisers; H2O Asset Management;5 Harris Associates; Investors Mutual Limited; Loomis, Sayles & Company; Managed Portfolio Advisors®;3 McDonnell Investment Management;7 Mirova;8 MV Credit; Naxicap Partners; Ossiam; Ostrum Asset Management; Seeyond;9 Seventure Partners; Vaughan Nelson Investment Management; and Vega Investment Managers. Not all offerings available in all jurisdictions. For additional information, please visit the company’s website at im.natixis.com | LinkedIn: linkedin.com/company/natixis-investment-managers.
Natixis Investment Managers includes all of the investment management and distribution entities affiliated with Natixis Distribution, L.P. and Natixis Investment Managers S.A.
Natixis Distribution, L.P. is a limited purpose broker-dealer and the distributor of various registered investment companies for which advisory services are provided by affiliates of Natixis Investment Managers.
1 Cerulli Quantitative Update: Global Markets 2018 ranked
Natixis Investment Managers as the 16th largest asset manager in the
world based on assets under management as of December 31, 2017.
2 Net asset value as of December 31, 2018. Assets under management (“AUM”), as reported, may include notional assets, assets serviced, gross assets and other types of non-regulatory AUM. AUM does not include Vega Investment Managers, which was transferred to Natixis Wealth Management in December 2018.
3 A division of Natixis Advisors, L.P.
4 A brand of DNCA Finance.
5 A subsidiary of Ostrum Asset Management.
6 Flexstone Partners assets as of 9/30/18. Flexstone was established in 2018 by bringing together four specialized private investments firms: Caspian Private Equity, Euro-Private Equity France, Euro-Private Equity Swiss and Eagle Asia Partners.
7 Natixis Investment Managers transferred ownership of McDonnell Investment Management, LLC to Loomis, Sayles & Company, L.P. on 1/1/19.
8 Mirova is operated in the U.S. through Mirova US LLC (Mirova US).
9 Seeyond operates in the U.S. through a participating affiliate arrangement with Natixis Advisors L.P.