New Generation of Workers Wants Next-Generation Retirement Savings Plans
BOSTON, MA, November 21, 2016 -- American workers are falling short of their retirement savings goals, and according to survey findings published today by Natixis Global Asset Management, the youngest members of the workforce, age 18-34, are pioneering a new set of standards for employer-sponsored retirement savings plans. The Natixis 2016 Retirement Plan Participant Study polled 951 workers of all ages across the U.S. who have access to a retirement plan at work. The survey found that most (86%) recognize their own responsibility to fund retirement, but they need more help from employers -- better education, stronger incentives and assistance with other financial pressures.
According to the survey, Millennials are much more likely to want substantial change:
On average, Millennials first enrolled in a retirement savings plan at age 23, while Gen Xers signed up at age 27 and Baby Boomers at 31. Even though they started saving for retirement earlier than previous generations, Millennials' openness to 401k mandates may stem from a sense that retirement security is increasingly their own responsibility, in part because they aren't confident Social Security will be a strong source of income. The majority of Baby Boomers (82%) are counting on Social Security benefits in retirement, but Millennials are not as optimistic, with only half (55%) believing such benefits will be available to them when they retire. Although the Social Security trust fund is fully paid for today, it will be only three-quarters funded by 2034.1
"Retirement planning has become a lot more complex since the first 401k was introduced 35 years ago, and the burden of saving has shifted increasingly to individuals over that time," said John Hailer, CEO for the Americas and Asia at Natixis Global Asset Management and Head of Global Distribution. "Helping people prepare for retirement is one of the most important things we do, so it's critical that the financial industry, business and government leaders work together to provide the tools people need and the education to use them effectively."
Many Not on Track to Meet Savings Targets
Six in ten people surveyed claim to know how much annual income they will need in retirement. However, both their savings goal and contribution levels are not high enough to reach their intended targets. Baby Boomers say they'll need $934,677 and are 34% of the way there. Gen Xers have 24% of their target of $810,387. Millennials have 8% of their goal of $869,662, having started saving an average of 4-8 years earlier than prior generations.
Even for workers who participate in their companies defined contribution plans, their savings rates aren't high enough to reach projected targets. Two in five (41%) plan participants contribute less than 5% of their annual salaries to employer-sponsored retirement plans. Furthermore, some Americans are undermining their progress by scrambling their own nest egg. Nearly one in three (28%) retirement plan participants, including 43% of Millennials, have taken a withdrawal from their retirement savings plan.
"Younger workers in particular are grappling with a different set of retirement challenges compared to previous generations. Their retirement savings strategies are encumbered by a number of factors such as student loan debt, a lack of company pensions and a sense of doubt that Social Security will be a source of income in retirement," said Ed Farrington, Natixis' Executive Vice President for Retirement Strategies. "Employers would do well to focus on designing comprehensive plans that offer greater incentives and a better range of investment choices that especially appeal to this large portion of the workforce."
Steps Plan Sponsors Can Take
The survey found that, even when given the chance, many U.S. workers choose not to participate in their employer-sponsored retirement savings plans, which is true for 300 respondents in the Natixis survey. For them, the biggest obstacle to signing up is the employer's failure to offer enough matching funds -- or any match at all (48%). However, eight in ten workers (80%) believe employers should be mandated to offer retirement savings plans. And concerns over retirement security are so high that 61% of respondents -- including 58% of those who don't participate in the plan they have -- said they are willing to accept mandatory contributions for themselves to establish a savings discipline.
For the workers who do participate, the biggest draws are company matching contributions (cited by 63%), tax incentives (56%) and the convenience of having money automatically deducted from their paychecks (52%). Additionally, over two-thirds (69%) of workers would contribute more if their employer offered a larger match. Nearly three-quarters (72%) believe employers should be required to provide matching contributions.
The study identifies four ways employers can voluntarily step up efforts to improve retirement savings:
"Employers have a crucial role to play to help more Americans achieve a financially secure retirement," Farrington said. "Our research shows that, with or without mandates, employers can meaningfully improve their employees' prospects for retirement security through thoughtful plan design. But the first step to driving participation is making retirement plans more accessible by providing education and advice that helps employees take full advantage of all that their retirement plan has to offer."
Natixis Global Asset Management surveyed 951 American workers who are eligible to participate in an employer-based defined contribution retirement plan, such as a 401k. Of the total, 651 workers are enrolled in such a program, while 300 do not participate. The age groups are broken up as follows: 285 Gen Y (18-34 years old), 283 Gen X (35-50 years old) and 383 Baby Boomers (51 years and older.) Data was gathered in August and September 2016 by the research firm CoreData. The findings are published in a new whitepaper, "Running on Empty." For more information, visit ngam.natixis.com/DefinedContributionSurvey.
About Natixis Global Asset Management
Natixis Global Asset Management serves thoughtful investment professionals with more insightful ways to understand and manage risk. Through our Durable Portfolio Construction® approach, we help them construct more strategic portfolios that seek to produce better outcomes in today's unpredictable markets. We draw from deep investor and industry insights and partner closely with our clients to put objective data behind the discussion.
Natixis is ranked among the world's largest asset management firms.3 Uniting over 20 specialized investment managers globally ($897 billion AUM4), we bring a diverse range of solutions tailored to meet every strategic challenge. From insight to action, Natixis helps our clients better serve their own with more durable portfolios.
1. Status of the Social Security and Medicare Programs, Summary of the 2016 Annual Reports, https://www.ssa.gov/oact/trsum/
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