Saving for retirement is starting younger
Life happens, disrupting the savings journey
Job changes can impact retirement savings
Potential effect of employer changes on retirement account balances
Job changes can impact
retirement savings
61% of plan participants either took a loan/early withdrawal, reduced the amount they were contributing, or stopped contributing altogether.
Life happens, disrupting the
savings journey
Saving for retirement is starting at an earlier age
Saving for retirement
is starting younger
Top influencers when starting to save for retirement
Ages 25 - 35
As their parents are likely Gen X, the first full 401(k) generation, some are bound to benefit from their experience and knowledge of retirement savings.
Age started saving for retirement
1. Family/friends
2. My own concern about my future
3. Automatically enrolled
4. Financial professional
5. Employer and Retirement plan provider (tie)
Family and friends influence younger employees to start saving
2021
2024
26.5
31
reality 1
Reality 1
Reality 2
Reality 3
External nudges seem to be helping
Possible solutions
Plan design
Engagement
Engagement
Small and medium-sized businsses (SMBs)
Large businesses
Automated features
For large employers with auto-enrollment—the focus turns to implementing the other automated features.
Large businesses
Auto-enrollment
Auto-enrollment is one of the simplest ways to get employees into the retirement plan.
Small and medium-sized
businesses (SMBs)
plan design
Plan design
of employees expect to be
auto-enrolled in a workplace retirement
plan when starting a new job.3
6
5
%
of employees remain
in the plan when auto-enrolled.4
9
5
%
Retirement legislation now requires new plans to have auto-enrollment. 5 Some believe It could eventually apply to existing plans. Now might be a good time to consider adding it to the plan.
Just a matter of time?
Potential tax credits and plan realignment may offer ways to accommodate the budget while incorporating auto-enrollment into the plan.
Don't let cost stand in the way.
Set strategic default rates
Auto-increase
Annual
re-enrollment
Default contribution rates can create an anchoring effect. Some employees might assume the default rate they’re auto-enrolled at is good enough.
That’s where auto-increase can help—by raising contribution rates 1% each year up to a set amount of 10%-15%.
Auto-increase
1-3%
4.8%
2.7%
Plan default contribution rate intervals
4-6%
7.2%
5.0%
7-10%
10.4%
8.2%
Without auto-increase
With auto-increase
Auto-increase helps counter anchoring
Average employee contribution rates by auto-increase status
Next
Annual re-enrollment
reality 2
Life can get in the way during the retirement savings journey
Took a loan or withdrawal
Took a loan or withdrawal
Reduced contribution rate
Stopped contributing
Loan and/or hardship withdrawal
More than one in four participants have taken a loan or hardship withdrawal from their retirement account.
28%
Annual earnings didn't seem to matter.
Top 3 reasons for taking a loan or hardship withdrawal
Annual household income
$50,000 - $99,000
$100,000 - $199,000
$200,000+
To pay for a large purhcase that was not optional (such as a car or home repair)
Downpayment for a house
Downpayment for a house
1
2
I or my spouse/partner lost a job
Repay non-student loan consumer debt (credit cards, direct loans, etc
Repay non-student loan consumer debt (credit cards, direct loans, etc
3
For expenses related to an adult, child or parent (non-education related) or medical debt (TIE)
I or my spouse/partner lost a job
To pay for a large purchase that was not optional (such as a car or home repair)
Reduced contribution rate
Reduced the amount they were saving for retirement. Of those, 45% said it negatively impacted their long-term finances. This is especially true for savers over the age of 45 who are moving closer to retirement.
Reducing the amount I was contributing to retirement has negatively impacted my finances long term.
25 - 34
35 - 44
Reduced contribution rate
39%
34.2%
40.9%
58.2%
54.7%
Top reasons someone reduced the amount they're saving for retirement:
27%
"My monthly expenses were too high."
Stopped contributing
Stopped contributing
Stopped saving for retirement entirely, whether temporarily or permanently.
20%
7
6
%
of those who stopped saving didn't want to, but felt they had no choice.
There is no difference between annual household income groups.
74.1% $200k+
74.2% $100k - $199k
78.1% $50k - $99k
reality 3
Job changes can negatively impact retirement savings
401(k) plans not designed for job changes
Defined contribution (DC) plans aren’t designed for frequent job moves. Different eligibility and enrollment rules can confuse employees who think they’re enrolled when they’re not.
In a previous survey:
of employees thought they were saving through their workplace retirement plan but weren't.2
59%
49%
thought they were auto-enrolled.2
Participant has a 3% default contribution rate with a 1% auto increase up to 15% in addition to an 100% up to 6% employer match
No employer change
A single employer change after first 5 years of employment
An employer change
every 10 years
An employer change
every 5 years
Frequent
employer
changer*
*Frequent employer changer assumes the participant changes employers after 1 year, then again after the next 2 years, then again after the next 3 years, then again after the next 4 years, and then will continue to change employers every 5 years until retirement.
Assuming a 40-year career with a starting salary of $60,000 where both at the start of their career and after each employer change, the participant gets auto-enrolled (or re-enrolled) at the specified default rate and gets auto increased each year by 1% up to 15%. Account balances are assumed to be fully vested and roll over from one employer to another.
All calculations assume a 6% annual rate of return, salary increase of 3% annually, 27% replacement from Social Security based on salary. The assumed rates of return in this chart are hypothetical and do not guarantee any future returns nor represent the returns of any particular investment. Amounts shown do not reflect the impact of taxes on pre-tax distributions. Individual taxpayer circumstances may vary. This is for illustrative purposes only.
$2.6M
$2.3M
-10%
$1.8M
-29%
$1.4M
-45%
$1.3M
-49%
set strategic default rates
Default rates matter. Those who change jobs more frequently might get caught up in a cycle of low default rates.
Next
Auto-increase
Three possible ways to help:
Set a higher default contribution rate. Is it currently at 3%? Consider making it 6% instead.
Auto-enroll experienced employees at the same contribution rate as their previous employer.
Set age-based defaults to factor in employees’ anticipated savings needs at different life stages.
Previous
Set strategic default rates
annual re-enrollment
Establishing an annual automatic re-enrollment can help get employees who may have adjusted their contribution rates back on their retirement journey.
It brings eligible nonparticipants into the plan, and those participating below the default contribution rate, back up to the default rate.
Number of respondents feeling unable to catch up was much higher among those who stopped contributing completely.
Reduce contribution rate
49.6%
Withdraw from retirement account
56.9%
Stop contributing
63.6%
Previous
Auto-increase
Communication best practices
Milestone celebrations
Pre-retirement information:
Catch-up contributions
Social Security
Medicare
Financial wellness education and services
45 - 55
55- 65
Total contributions
(in future dollars without earnings)
Employee
$626k
Employer
$268k
$586k
$350k
$229k
$222k
$268k
$247k
$219k
$214k
Engagment campaigns
No matter the size of an organization, targeted and personalized communications can help get employees involved in their retirement journey
Engagment campaign ideas
Communication best practices
Use clear, concise language
Send more frequent communications
Use annual benefits enrollment time
Took a loan or withdrawal
Reduced contribution rate
Took a loan or withdrawal
Took a loan or withdrawal
Reduced contribution rate
No employer change
A single employer changer after first 5 years of employment
An employer change every 10 years
An employer change every 5 years
Small and medium-sized businesses (SMBs)
Small and medium-sized businesses (SMBs)
Small and medium-sized businesses (SMBs)