How Are Retirement Savers Doing?

By John Iekel • May 18, 2018 • 0 Comments
The glass is half full — or half empty — regarding retirement saving levels, depending on who one listens to. A recent white paper takes a look not only at how employees are doing, but also the habits that can help in achieving greater financial security in retirement.

In the white paper “Scoring the Progress of Retirement Savers,” the Empower Institute analyzes results from a survey of more than 4,000 American workers aged 18 to 65, and estimates the percentage of working income that American households are on track to replace in retirement.


The study found a significant gap. But it was not so much between the saving levels retirees will need and their actual balances and what their balances are likely to be; it was between the results for those whose behaviors are conducive to saving and the results for those whose are not.

The median projected income replacement among participants in the study was 64%. But any median ultimately is derived from calculations that account for extremes, and Empower Institute’s results are no different. In this case, they found a “wide gap” between those who plan for their retirement and those who do not; between those save and those who do not; and between those with high contribution rates and those whose rates are low.

Following is a look at the gaps in projected income replacement levels given various factors.

Projected Income Replacement Levels During Retirement By Factor


Factor            Income Replacement Rate
Has Access to Employer-Provided Plan                                79 
No Access to Employer-Provided Plan                                45
Participates in a DC Plan                                85
Does Not Participate in a DC Plan                                57
Defers 10% of Pay or More                              128
Defers 3% of Pay or Less                               59
 Auto-Enrollment                               95
 Must Op-In                               84
Auto-Escalation                             107
No Auto-Escalation                               80

Glass Half Full

A potentially important bit of optimism with positive implications for retirement saving: the study found high levels of optimism about the prospects for the U.S. economy and for job security. More specifically, nearly 80% of respondents said they expect the economy to grow in the next year, and almost 25% of them expect strong growth (at least 3% per year or more). The Empower Institute says this is “among the most positive outcomes we have seen since the study began in 2011” and adds that sentiments about job security are almost as strong.

Another reason for optimism — the study found that Millennials have the highest projected rate of income replacement during retirement of any demographic group, 75%, 14 percentage points higher than the next generation, X, as well as the younger Baby Boomers, and 20 percentage points higher than the older Baby Boomers. The Empowerment Institute said of this that “This result is not surprising — and suggests the impact of saving early in one’s career.”

The Empowerment Institute’s positive findings are in keeping with sentiments American Enterprise Institute Senior Fellow Andrew Biggs expressed at the recent PSCA Annual Conference, in which he spoke of a “much more positive story to tell” than that spun by those who warn that saving levels are too low. Similarly, the Employee Benefit Research Institute (EBRI) recently issued a study in which it found that retirees generally exhibit very slow decumulation of assets.

What’s an Employer to Do?

The study makes some suggestions regarding what employers and plan sponsors can do to improve employees’ income replacement levels during retirement. These include the following.

Employer Match. The study days that an employer match affects saving behavior; of those who know what their employer’s match is, 73% set their contribution levels accordingly.

Personalized Help.
The Empower Institute found that at least 80% of employees find working with a financial specialist at least somewhat attractive. They conclude that offering personalized help “is likely to enhance appreciation for the plan while increasing the number of employees who are on track to accomplish their retirement goals.”

Auto Features.
The study says that features such as auto-enrollment and auto-escalation “drive higher retirement progress scores.”

Education. “The more employees know about specific financial needs in retirement, the more likely they are to take action to meet these needs,” the study says, adding that “Employees who are confident in their understanding of various factors like healthcare costs and overall income requirements have a higher median lifetime income percentage than those who do not. Even educating employees on the plan’s match may influence contribution levels.”

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