More than three-quarters of plan participants (78%) know it is important to determine how much to save for a secure retirement but only a third claim to have the knowledge to determine that amount, according to a survey released Wednesday by State Street Global Advisors.
SSgA Defined Contribution Investor Survey respondents are willing to save more for retirement and report that there is room in their budgets to do so.
“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,” says Kristi Mitchem, senior managing director and head of global defined contribution for SSgA.
The majority of respondents (83%) say they could cut their household budget by at least five percent to save more — including 64% that say they could reduce their budget by 10% or more.
In addition, 52% of respondents would be willing to increase their savings rate to as high as 10% if their employer automatically increased their savings rate by one percent each year.
However, many defined contribution investors are hampered by an “action gap” caused by the disconnect between understanding what is important and knowing how to take action.
“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,” says 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.”
The survey uncovers three findings that are especially important for helping plan sponsors and plan participants 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 key to engaging employees to help close the “Action Gap.”
The bi-annual survey is conducted jointly with the Boston Research Group and surveys more than 1,000 401(k), 403(b), 457 and profit sharing plan participants to identify their behaviors and perceptions about saving and investing.
