Part One: Contributions
THREE KEY TAKEAWAYS
- Participants largely think they should be saving more than they are.
- Most want help establishing the right contribution rates.
- More are being automatically enrolled and automatically escalated—and they are OK with it.
1. PARTICIPANTS LARGELY THINK THEY SHOULD BE SAVING MORE THAN THEY ARE
Participants know that they should be saving more for retirement—but they are not doing it. While three out of four survey respondents believe they should be contributing at least 10% of their salary in order to be financially secure in retirement, 65% say they have not contributed the amount they believe they should in the past year. When respondents are asked why they are not saving more, the most common reason is “to pay off debt” (41%), followed by “not earning enough” (28%) and other savings (24%) or spending (23%) priorities.
The challenge, of course, is that the only way to be certain of accumulating a safe level of retirement assets is to save enough. And the earlier participants start, the better to maximize the benefits of long-term market gains and compounding.
One bright spot is that more respondents this year (52%) report contributing 10% or more to their plans, compared with our past surveys. However, 45% are still falling below that 10% level, sometimes dangerously so, with 15% contributing less than 5% (EXHIBIT 1). Interestingly, participants who say that they are not confident about how much they should save for retirement are far more likely to contribute below 5% than those who say that they are extremely confident (42% vs. 7%). Participants who were not automatically enrolled and automatically escalated are also more likely to contribute at this low level (23% vs. 8%).
Nearly half contribute less than 10%—well below the 16.1% mean that respondents believe they should be saving
2. MOST WANT HELP ESTABLISHING THE RIGHT CONTRIBUTION RATES
Three out of four participants want advice about how much they should be contributing to the plan to meet their retirement goals (up 10% from 2016), and seven in 10 think this view should be coming from their employer (up 31% from 2016) (EXHIBIT 2). Half also believe their employer should actively let them know if they are falling short (up 22% from 2016). In addition, just under one-third of participants decided on their contribution rates because they were what their employers matched.
A steadily growing number want—and expect—more guidance on how much to contribute
EXHIBIT 2A: WANT MORE ADVICE ON HOW MUCH TO SAVE IN THE PLAN —STRONGLY/SOMEWHAT AGREE
EXHIBIT 2B: EMPLOYER SHOULD PROVIDE VIEW ON HOW MUCH TO CONTRIBUTE —STRONGLY/SOMEWHAT AGREE
EXHIBIT 2C: EMPLOYER SHOULD NOTIFY ME IF I AM NOT SAVING ENOUGH —STRONGLY/SOMEWHAT AGREE
3. MORE ARE BEING AUTOMATICALLY ENROLLED AND AUTOMATICALLY ESCALATED—AND THEY ARE OK WITH IT
Participants’ favorable/neutral views of both automatic enrollment and automatic escalation continue to rise, climbing to 89% this year (EXHIBIT 3). Four in 10 survey respondents were automatically enrolled into their current plan, up more than 50% from 2016. Of those automatically enrolled, 97% say that they are “very” or “somewhat” satisfied with the action. Three in 10 have had their contributions automatically increased; of this group, 99% were satisfied.
Almost 90% have favorable or neutral views about automatic enrollment and automatic escalation programs
EXHIBIT 3: VIEW OF AUTOMATIC ENROLLMENT AND AUTOMATIC CONTRIBUTION ESCALATION
These automatic program efforts by plans appear to be paying off: About two in 10 automatically enrolled participants or automatically escalated participants say they probably would not have enrolled or increased their contributions on their own, or they are not sure. Plus, those able to take advantage of both features tend to be more confident that their savings will last a lifetime (71% vs. 56%).
With long-term capital market assumptions generally falling compared with recent years, it is even more important for participants to save as much as possible. Plan sponsors and financial professionals are uniquely positioned to help drive savings rates higher and make it easier for participants to help themselves. They should consider:
- Setting the starting point for automatic enrollment contribution rates higher than the current 5% average1 and/or automatically escalating contributions until they reach more realistic levels of 10%–15% for safer retirement funding.2
- Providing target savings rates and retirement balance projections to help quantify participants’ savings goals.
- A stretch match—requiring a higher employee contribution to get the same match—to encourage higher savings rates at no greater cost to the employer, or automatic enrollment combined with matching contributions and automatic escalation to help shape constructive savings behavior.
Broader adoption of employer-sponsored financial wellness programs may also help address some of the main reasons participants are not saving more for retirement, such as too much debt or other spending constraints. The pandemic showed that the average American household is capable of pulling back and adapting spending in a meaningful way. Financial professionals may be able to help participants use this momentum to reassess and potentially rebalance their spending in a thoughtful manner, including strengthening their retirement nest eggs.
1 J.P. Morgan retirement research, 2015–17.
2 Recommended savings rates based on J.P. Morgan analysis of median and affluent households.