Setting Retirement Savings Goals Increases Engagement

By Stephen Miller, CEBS May 10, 2011

When employees set a goal for their retirement savings, they tend to be more engaged in planning for their retirement. This includes increasing the amount they actually save and staying on top of news associated with their retirement plans, according to a survey of more than 2,400 plan participants by Diversified Retirement Corp., a provider of defined contribution retirement plan services.

The survey underscored the benefit of educating participants about goal setting, with 71 percent of respondents who are not confident they will have enough for retirement saying they would be likely to contribute more to their retirement savings accounts if they were educated on how much they need to retire.

Participants overall indicated they want this kind of assistance—57 percent expressed interest in getting help with setting goals and 50 percent would welcome assistance with monitoring goal progress.

“These results are a very positive indication that people have become much more attuned to the responsibility they have in meeting their retirement needs and that participant communications and education can have a meaningful impact on helping them reach a funded retirement,” noted Patricia Advaney, senior vice president of participant solutions for Diversified. “Even though the burden of funding retirement has decidedly shifted to participants, employers and plan providers can play a critical role in helping them to that end.”

Setting Goals, Saving More

On a positive note, employees have become more active in their retirement planning, the survey revealed. Specifically:

  • 29 percent of respondents established a retirement income goal in 2011, an 8 percentage point increase from 2010.
  • 41 percent increased the amount they are saving for retirement, a 3 percentage-point increase over 2010.
  • 62 percent said they monitored their retirement outlook to assess where they stand vis-à-vis their retirement income goals and for insight into how they can adjust their asset allocation or contribution level to improve their outlook.

Among the survey’s other findings:

  • Participants are saving more for retirement—66 percent are saving 6 percent or more in 2011, a 6 percentage-point increase over the number of respondents saving that much or more in 2010.
  • While most participants have a retirement goal, they are not very confident they will have enough for retirement; 35 percent were simply guessing about the amount they needed.
  • Less than one in three participants are confident about the amount of income they will have in retirement; only 7 percent said they are extremely confident and 21 percent said they are very confident.
  • Those without a goal are even less confident, with only 2 percent saying they are extremely confident and 6 percent very confident.

Seeking Help

Participants are increasingly interested in seeking help to establish a retirement income goal: There was an 8 percentage-point increase in the number of participants who want help in creating goals over 2010 (now 57 percent). Moreover, 52 percent want help understanding their investment options (a 12 percentage-point increase from 2010) and 50 percent want help measuring progress toward their goals (a 10 percentage-point increase over 2010).

Retirement Preparedness Lows

Along similar lines, employees are continuing to take charge of their financial recovery from the 2008 recession and are showing they understand the importance of planning for their future, according to Financial Finesse, a provider of workplace financial education.

“We first identified this trend in the middle of the recession, with employees developing better financial habits out of necessity. The good news is that it is continuing without the usual complacency that we typically see in an economic recovery,” said Liz Davidson, CEO of Financial Finesse. “Every quarter that employees continue this momentum, the less likely they are to backslide and more likely that this is a lasting mind shift in how they manage their finances.”

But despite strides forward, Davidson warns that employees still have a long way to go when it comes to securing their retirement. Only 15 percent of U.S. employees were confident they are on track to meet their retirement goals as of the first quarter of 2011, which is among the lowest retirement confidence levels the firm has ever recorded, she noted.

Lack of Investment Knowledge

Moreover, the Financial Finesse report identified a big area of concern in employees’ investing knowledge, showing that only 34 percent were confident their investments are allocated appropriately for their time horizon and risk tolerance, even though 77 percent of employees indicated they understood the basics of stocks, bonds and mutual funds.

"This makes it even more evident that there is a huge gap between where employees are with their retirement savings and where they need to be in order to avoid an economic crisis," said Davidson.

David Wray, president of the Profit Sharing/401(k) Council of America, recently observed, “Many employees are still not saving enough, and companies are implementing more retirement planning and education programs." He urged that "Every employer needs to have a robust program in place to provide the ongoing retirement education that employees need so they will save sufficiently and invest appropriately and be effectively prepared for retirement.”

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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