The use of online calculators and retirement advisors has been linked to higher levels of retirement confidence—and for good reason, according to new research from the nonprofit Employee Benefit Research Institute (EBRI).
The research findings, reported in the March 2013 issue of EBRI Notes, are based on retirement readiness ratings drawn from EBRI’s 2013 Retirement Confidence Survey. Among the findings:
- Americans who used an online retirement income calculator or who consulted with a financial advisor appeared to set more adequate savings targets, as measured by the probability of not running short of money in retirement.
- Those in the lowest income quartile who sought the input of a financial advisor reduced the risk of not having enough retirement money by anywhere from 9 to nearly 13 percentage points, depending on family status and gender.
- Those in the lowest income quartile who used an online calculator decreased their probability of running short of retirement funds by anywhere from 14 to more than 18 percentage points.
- For all income quartiles, those who guessed at a retirement savings target were less likely to choose an adequate savings goal.
“As American workers bear a growing responsibility for accumulating retirement income and managing the drawdown of those savings during retirement, it is more important than ever that households be able to set adequate targets for their retirement savings,” said Jack VanDerhei, EBRI research director and co-author of the report. “Unfortunately, just over a quarter of the respondents used either an online calculator or a financial advisor. Nearly half—about 45 percent—were more likely to simply guess at their savings needs.”
As Cheaply as One?
EBRI research on expected retirement savings shortfalls (based on inadequate savings rates) suggests that nearly two-thirds (66.1 percent) of single men and almost as many single women (61.6 percent) were likely to have adequate retirement income. However, fewer than half (45.8 percent) of married households would have adequate retirement income based on their chosen savings targets.
Unlike previous research that indicated married households would be better prepared for retirement than single men and women, the new analysis “recognizes that expenses for married households would be expected to be higher than their single male or single female counterparts while both members are still alive, other things being equal,” and that “married households may not be taking those additional expenses fully into account,” the report states.
401(k) In-Plan Advice Users More Confident
Employees who said they use advisory services offered by their 401(k) plan had a distinctly more positive outlook about their future retirement than those who did not, according to an analysis of data from a recent Mercer Workplace Survey.
Nearly one-fifth (18 percent) of respondents said they worked with an online or in-person advisory service in their 401(k) plan. Although they make up a relatively small percentage of plan participants, those who used advisory services were much more likely to believe that they will have enough money for retirement, will live as well or better than when working and will not have to delay retirement.
The survey also revealed that awareness and availability of in-plan investment advice are high: 79 percent of participants said their plan offers some type of advice (online, in-person/telephonic or both), up from 72 percent in 2011.
A comparison of typical in-plan advice users and those who do not use these services reveals that users are younger, better educated, and have higher incomes, balances and deferral rates.
“This profile of the typical in-plan advice user should give pause to plan sponsors who want to communicate the high value that investment-advice services can provide,” said Suzanne Nolan, a communications leader at Mercer, the HR consultancy that sponsored the survey. “These are participants who may in fact need this advice the least, given that they often have longer retirement savings horizons, tend to utilize outside advisors, and potentially have both more financial and educational resources at their disposal,” she noted.
“The true challenge for a plan sponsor offering in-plan advice is to reach those on the lower end of the income spectrum, where ‘every dollar counts,’ and who may also have a shorter time frame in which to accomplish their retirement savings goals,” Nolan said.
The survey drew on a national cross section of active 401(k) participants. Online interviews were completed with 1,656 participants between June 6 and June 21, 2012.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Retirement Income Projections Motivated Savings, SHRM Online Benefits, April 2011
Retirement Confidence Stuck at Historic Lows, SHRM Online Benefits, March 2011
Obama Administration Issues Final Rule on Investment Advice, SHRM Online Benefits, October 2011
Education Eases Employees’ 401(k) Concerns, SHRM Online Benefits, September 2011
Investment Advice Effective When Used, but Participation Lags, SHRM Online Benefits, November 2010
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