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Americans’ Retirement Outlook Has Improved

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American workers are far more secure in their retirement preparations than they were from the bleak financial days of 2007.

Research from Transamerica Center for Retirement Studies showed that household savings in all retirement accounts have dramatically increased since their pre-recession levels. When broken down by age groups, Millennials (born from 1979 through 2000), Generation X (1965-1978) and Baby Boomers (1946-1964) all dramatically increased their savings. Millennials grew from $9,000 in 2007 to $36,000 in 2017, Generation X from $32,000 to $71,000 and Baby Boomers from $75,000 to $157,000.

“Those are really important increases. In analyzing the data, we can attribute this to a few factors,” said Catherine Collinson, CEO of Transamerica Institute. “Among workers who were employed and participating in a 401(k) plan, participation rates held steady over the course of the recession, which is excellent news.”

This, in large part, is a credit to employers that continued with their 401(k)s or similar plan offerings. The survey found that 72% of employers offered such a plan in 2017, which is unchanged from 2007. Many employers did stop their 401(k) matching programs during the recession before ultimately reinstituting them, according to Market Watch.   

“Throughout the recession, employers who offered a retirement plan continued to maintain their plans. Many employers faced difficult cost-cutting measures with regard to their businesses, the good news is the plan sponsorship rate did not drop over the course of the recession,” Collinson said. “However, there’s still ample room for improvement as we can see, but I think that is a really good testament to employers’ commitment and the strength of the system.”

There’s still more that employers can do in addition to offering a 401(k) plan to aid their employees’ retirement savings endeavors, Collinson said. TCRS’ research reveals that about half of the employers that offer a 401(k) or similar plan do not extend that eligibility to their part-time workers. Given the emergence of the gig economy, it would behoove them to offer this to their part-time and contract workers, Collinson said.

Employers can also improve their workers’ retirement prospects by promoting the educational tools around their 401(k) plans and encouraging employees to utilize them. Collinson said one survey finding that hasn’t changed from 2007 to 2017 is that half of workers guess how much they need to save and only one in 10 said they’ve used a retirement calculator before.

“We see a lot of opportunities for workers to improve their retirement outlook simply through better planning. Very few workers indicate they’ve ever used a calculator to estimate their retirement savings needs,” Collinson said. “One thing employers can do is send out email reminders with click-throughs to the calculators to encourage their employees to calculate retirement savings goals. Or, if that’s too onerous, most plan providers have staffed financial advisers via 800-numbers who are available to help plan participants estimate of what they need to save.”

The research also found that despite the encouraging increases in retirement savings from 2007 to 2017, there was quite a bit of leakage. By 2017, 30% of workers had taken some form of a loan and/or early withdrawal from a 401(k), IRA or similar plan. Collinson noted how this can hurt reaching the ideal retirement goal. However, the research bared out that employees who pulled money from their retirement funds did so for legitimate reasons rather than frivolous spending.

“For those taking loans, the most often cited reasons were to pay off debt like high-interest credit card debt, or if they encountered some sort of financial shock, an unplanned major expense that they needed funds to cover and tapped into their 401(k),” Collinson said. “For hardship withdrawals, which is when you’re participating in the plan and need an emergency withdrawal without taking a loan, one of the top reasons was paying off medical expenses. The reasons are out of true necessity.”

About the Author

Brett Christie is a staff writer at WorldatWork.

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