Would you be willing to give up 5 percent or more of their salary if it meant steady income to maintain your standard of living in retirement?
The economic collapse and subsequent recession has compelled Americans to take a closer look at their financial situation, money habits and retirement readiness. Many are unsettled at what they are finding. Eighty-five percent of American workers feel they are not saving enough for retirement, while 60 percent believe it will be “very difficult” to ever save enough to maintain their standard of living in retirement, according to a new Bank of America Merrill Lynch report.
The 2013 Workplace Benefits Report, a study of the increasingly significant role financial benefit plans play in retirement readiness and financial security, finds that more than three-fourths of respondents see themselves working into their late 60s or 70s, up from 72 percent a year ago.
The importance of workplace retirement savings plans is not lost on employees concerned with their long-term financial security, the report finds. Seventy-one percent of respondents said that their workplace retirement savings plan will be their largest or second-largest source of retirement income, followed by Social Security (43 percent) and other savings and investments (38 percent).
Two-thirds of surveyed employees contribute 5 percent or more of their salary to a 401(k) plan. Among pre-retirees, more than half (56 percent) contribute at least 10 percent of their salary to their 401(k), and 29 percent contribute 15 percent or more to their 401(k), according to the report’s major findings. A majority (55 percent) of employees under the age of 50 saving in a 401(k) plan contribute 5 percent or more of their salary. Only 8 percent of these younger workers have a contribution rate of less than 3 percent.
A significant majority (84 percent) of respondents said their employer provides some form of 401(k) match, and 78 percent contributed at least enough last year to meet the match. Among pre-retirees this increases to 90 percent. However, only 20 percent of all plan participants contributed the maximum legal amount last year, and only 37 percent of pre-retirees are maximizing their annual contributions.
Nearly 80 percent of employees said they would be willing to give up 5 percent or more of their salary if it meant steady income to maintain their standard of living in retirement. Thirty-eight percent would be willing to give up at least 10 percent. .Among pre-retirees, those willing to give up 10 percent or more of their salary for such a guarantee climbs to 52 percent.
This year’s survey asked for the first time how employees would use an unexpected bonus of $1,000 from their employer, if they could only use it for one thing:
- Thirty-six percent would pay down debt
- Twenty-six percent would save for retirement
- Fifteen percent would use it toward bills or other necessities
- Eight percent would use it to treat themselves or their family to something special
For many employees, achieving retirement readiness is increasingly tied to preparing for income needs during retirement, addressing the rising cost of health care and balancing competing financial demands throughout their lifetime, the report finds. Among the factors employees say are an obstacle to saving for their senior years rising healthcare costs (28 percent), not knowing how much they will need to retire (28 percent) or having a sense that they will never be able to save enough (24 percent), competing financial obligations and desires (28 percent), uncertainty about how or where to invest (26 percent) and a general fear of investing (26 percent).
Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.
A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.