401k Investors Willing and Able to Save More; Study Reveals "Action Gap"
BOSTON, MA, July 18, 2012 -- Employees across the United States are willing to save more for retirement and report that there is room in their budgets to do so. However, many defined contribution (DC) investors are hampered by an "action gap" caused by the disconnect between understanding what is important and knowing how to take action, according to a survey of plan participants released today by State Street Global Advisors (SSgA), the asset management business of State Street Corporation (NYSE:STT).
Seventy-eight percent of survey respondents reported that they know it is important to determine how much to save for a secure retirement but only 33 percent claim to have the knowledge to determine that amount. The majority, 83 percent, of respondents said they could cut their household budget by at least five percent to save more--including 64 percent that said they could reduce their budget by 10 percent or more. In addition, 52 percent of respondents would be willing to increase their savings rate to as high as 10 percent if their employer automatically increased their savings rate by one percent each year.
The bi-annual SSgA Defined Contribution Investor Survey, conducted jointly with the Boston Research Group, surveyed more than 1,000 401k, 403(b), 457 and profit sharing plan participants1 to identify their behaviors and perceptions about saving and investing. The survey uncovered three findings that are especially important for helping employers and employees improve retirement outcomes for DC investors:
- Savings willingness and elasticity, or flexibility in budgets to save more, are significant.
- Participants display a significant "Action Gap" between understanding the need to take action and possessing the knowledge to do so.
- Simplicity and repetition are the keys to engaging employees to help close the "Action Gap."
"The survey uncovered some very encouraging findings, the most striking of which was that the majority of DC investors have the flexibility in their budgets to support greater retirement savings," said Kristi Mitchem, senior managing director and head of Global Defined Contribution for SSgA. "Many are also open to automatic savings increases up to 10 and 15 percent, which is very promising news for employers. We encourage employers to test savings elasticity with their employees and to encourage higher savings rates by implementing savings challenges or by automatically increasing the savings default rate."
Despite high education levels, only one-third of survey respondents claimed they could tackle the task of diversification although two-thirds acknowledged they know this is important when investing for retirement.
"The 'Action Gap' was a key finding of our survey because it indicates that DC investors are not totally in the dark as some studies have suggested," continued Mitchem. "They clearly are aware and understand what is important to their retirement success but are confused about how to turn their understanding into informed action. We believe the more we can help employers understand the reasons for the action gap, the better equipped they can be to help employees take steps to save more and invest more wisely."
Other findings include the following:
- Approximately 40 percent of respondents expressed uncertainty about the risk and return characteristics of common investments found in 401k plans, including international equity funds, stock index funds, and stable value funds.
- Approximately 67 percent know adjusting their investments over time is important, but only 30 percent say they know how to do this.
- Approximately 82 percent think it is important to know how to make retirement savings last a lifetime, but just 28 percent reported they know how to achieve this.
- More than half of survey respondents admitted they do not know what target date funds (TDFs) are, or are not familiar with how they work. Those who did understand TDFs responded most favorably to a description of the funds that was free of jargon. Click here http://www.ssga.com/definedcontribution/investment-solutions/target-date-funds/index.html to view SSgA's video explaining TDFs.
The survey results indicated that employees who engage more frequently in conversations about retirement show higher knowledge and awareness levels than those who do not. More than 71 percent of participants reported having read about retirement during the past six months and 64 percent said they read their statement. Employers should be encouraged to engage with participants more regularly about retirement and to repeat messages regularly using different mediums-from print and video to call centers and conversations with financial professionals.
Mitchem added, "We are encouraged that employees who participate in DC plans know what is important, but they simply don't know what to do. Employers want their employees to be financially successful, not necessarily financial experts. We need to turn confusing tasks into clear steps, not with investment lingo but with simple, clear descriptions and explanations. We also need to take advantage of tools that simplify, like automatic savings and professionally managed target date funds. We believe success is achievable if we can close the gaps between knowing and doing."
For more information on the survey or to subscribe to "The Participant" magazine, visit www.ssga.com/dc/theparticipant.
About State Street Global Advisors
State Street Global Advisors (SSgA) is a global leader in asset management. The firm is relied on by sophisticated investors worldwide for its disciplined investment process, powerful global investment platform and access to every major asset class, capitalization range and style. SSgA is the asset management business of State Street Corporation, one of the world's leading providers of financial services to institutional investors.
About State Street Corporation
State Street Corporation (NYSE: STT) is one of the world's leading providers of financial services to institutional investors including investment servicing, investment management and investment research and trading. With $22.4 trillion in assets under custody and administration and $1.9 trillion in assets under management at June 30, 2012, State Street operates in 29 countries and more than 100 geographic markets. For more information, visit State Street's web site at www.statestreet.com.
*This AUM includes assets of SPDR Gold Trust (approximately $68 billion as of June 30, 2012), for which State Street Global Markets, LLC, an affiliate of State Street Global Advisors serves as the marketing agent.
1. The survey was conducted in collaboration with Boston Research Group, a leader in retirement plan research. The data were collected in April 2012 through a 10-minute Internet survey using a panel of verified 401k, 403(b), profit-sharing and stock purchase plan participants who were actively contributing to their plans. The sample of 1,034 observations has a maximum sampling error of +/- 3 percentage points at a 95 percent confidence level
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