Two newly released surveys found that while investment education efforts are helping defined contribution plan participants to improve and diversify the allocation of their retirement accounts, many Americans still are not saving enough in the first place to ensure a comfortable retirement.
A survey of 813 defined contribution participants conducted by the Gallup Organization for John Hancock Financial Services, Boston, found 60% of respondents believe they are more knowledgeable investors than they were a year ago and 63% are paying more attention to their retirement investments. Consequently, 73% of respondents said they were more concerned about portfolio diversification than they were a year ago and 78% felt their 401(k) accounts were properly diversified.
The aggregate results of such efforts to diversify showed a dramatic increase in 1993 into equity options from GIC, stable income and money market choices by plan participants. The emphasis on balanced and so-called lifestyle funds also may be bearing a rich harvest; participant allocations to such mixtures of equity, fixed income and cash swelled 8% during the last year.
Equity investments rose to 59% in 1993 from 42% in 1992.
Stable income and GIC investments dropped to 39% from 47%.
Company stock investments dropped to 36% from 40%.
Money market investments dropped to 32% from 37%.
Bond investments rose slightly to 28% from 27%.
Government/Treasury investments rose to 19% from 18%.
Balanced fund investments soared to 15% from 9%.
Participants were better informed than in the past about retirement options because employers have been providing better education and communication campaigns, the Gallup/Hancock study found. The quantity of communications provided by employers was improved, said 44% of the survey's sample, as well as the quality of education, said 49%. Many employees still want more information, however. Despite the improvements, 51% of survey respondents said they still lack sufficient knowledge and information to effectively manage their retirement savings.
This feeling of unease among plan participants might be warranted. While participants might be following directions and diversifying their retirement assets, many still lack complete understanding of basic investment tenets. For instance, the survey found half of the sample of participants were sure stocks typically were found in a money market portfolio. Only 26% of respondents knew the optimal time to transfer into a bond fund was when interest rates are expected to go down. More than 40% of participants were unsure what investments were included in a balanced portfolio.
Many participants (34%) - especially those with lower incomes, less money invested in a 401(k) plan and less formal education - said they felt their employers should provide specific investment advice to them about how their plan assets should be invested. Professional retirement planning advisers were provided by companies to 37% of those surveyed; 47% of these respondents had taken advantage of the planning help. The participants most likely to use such planning services were respondents aged 55 to 65, females and those with more formal education. An overwhelming majority (85%) of those surveyed who were not offered retirement planning services by their employers said they were likely to use such a service if it became available to them at work.
And despite past promises to the contrary, Americans still are not saving enough for comfortable retirement, according to a survey by Fidelity Investments, Boston, and Yankelovich Partners, Westport, Conn.. Three-quarters of the respondents to Fidelity's 1992 survey indicated they were willing to reduce current spending in order to save more for retirement, through company sponsored retirement plans and private savings. The latest survey, based on telephone interviews conducted in late December, found a 20% decline in consumer willingness to reduce personal spending in order to save more for retirement, down to 54% from 74% reported in the 1992 survey. The 1993 savings rate of 3.8% of pre-tax salary is much lower than in previous economic expansion periods, such as 1985, when the rate was 6.5% and 1977, when savings were 6.3%.
The Fidelity survey of 1,400 consumers found the retirement savings rate virtually unchanged from the previous year's rate, with two-thirds of all respondents reporting savings at the same level as or less than in 1992. More than 50% of respondents of all ages have less than $30,000 in total retirement savings. Among respondents older than 40, 34% have saved less than $30,000 in total retirement assets.
Not surprisingly, given the statistics, 80% of respondents expected to work well into their retirement; 92% of this pool expect to work part-time. Of the older workers, 37% cited the need for extra income as the primary motivation behind a longer work career.