While being familiar with a term is one thing, comprehension is another. Two-thirds of participants who have heard of target date or target risk funds assert they do not understand the term. Seventy-seven percent have heard of vesting but fewer than half assert that they understand the term completely. Plan participants need a better grasp of basic retirement planning terms to truly understand how 401(k)s work and how they can be engineered to meet their financial goals and optimize their contributions.
This is particularly important as 401(k)s and other defined contribution plans are by far the largest anticipated source of retirement income for plan participants. In fact, 77 percent of survey respondents expect it to be their most important source of income in retirement. This is the primary vehicle they use to fund their retirement and it’s the primary vehicle they plan on drawing from to provide income in retirement. Personal savings is viewed as the third largest source of income with
Additionally, while plan participants place the 401(k) on a pedestal, it still remains underutilized. The average 401(k) participant under 50 contributes
On top of not investing enough, the study shows that most individuals are unprepared to make decisions or take action to optimize their 401(k) plans and are leaving tax-efficiency on the table. One-third of all 401(k) participants chose to leave their 401(k) accounts completely untouched within the past year, meaning few increased their contribution. This is where proper education and guidance can influence how plan participants engage with their retirement plans.
“The RetireWell Study magnifies the importance and expectations plan participants place on their defined contribution plans,” said
The Study acknowledges that plan participants are fairly realistic about the connection between savings behavior today and retirement income tomorrow. However, plan participants are overly concerned with checking on their account balances and do not focus enough on how to convert their balance into income. This directly influences their retirement outlook; 50 percent are only somewhat confident that they will hit their target retirement income. Further guidance and knowing how current contribution rates stack up against future income replacement would cause plan participants to set more money aside.
“It’s certainly reasonable to speculate on the link between comprehension, clarity, and participant engagement,” stated
To obtain a copy of The Small Plan 401(k) RetireWell Study SM: What’s Working and Not Working for Small Plan Participants results, please visit: http://www.guardianlife.com/401kRetireWell. About Guardian
Guardian Retirement Solutions™ refers to the administrative support services, including participant recordkeeping as well as marketing, enrollment and educational materials, provided by GIAC in conjunction with the individual and group retirement products issued by GIAC. For more information about Guardian Retirement Solutions, please visit 401k.GuardianLife.com. Photos/Multimedia Gallery Available: http://www.businesswire.com/multimedia/home/20150416005162/en/
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