Defined contribution participants who consult financial advisers have a much better chance of achieving retirement goals than people who don’t have advisers, said a survey published Monday by Empower Retirement.
The Empower survey of working adults showed that people consulting advisers were on track to replace 82% of current income in retirement compared to the 55% for the group that didn’t consult advisers.
“For those who do use advisers, it tends to act as a nudge” to increase savings and improve asset allocation, said Edmund Murphy III, president of Empower Retirement, in an interview.
Mr. Murphy said the use of advisers is just one way to help participants improve their retirement savings behavior, noting that the latest Empower survey shows that the average American worker is able to replace 58% of his or her income in retirement, down from 61% in the previous year’s survey.
“We still have a challenge in retirement savings,” Mr. Murphy said.
He added that other important factors for workers building an adequate financial foundation for retirement include having access to a workplace retirement plan, participating in a defined contribution plan and deferring 10% or more of income annually, and participating in an automatic-escalation program within the DC plan
Empower calculates workers’ retirement readiness through its lifetime income score, a formula that takes into account retirement savings, Social Security, investments and other sources of income.
The aggregate lifetime income scores show greater retirement readiness for people eligible for employer retirement plans vs. those who aren’t eligible; for those automatically enrolled in a plan vs. those enrolled voluntarily; and for those who have auto escalation in their plans vs. those who don’t.
The lifetime income score also incorporates health-care costs. The latest survey shows that 26% of survey respondents are “not at all confident” about how much money they need to cover health-care costs. Another 38% said they are “not very confident” about how much health-care money is needed.
It’s important to integrate health-care costs into retirement calculations because “adverse health is a significant factor for retirees,” said W. Van Harlow, research director for the recently launched Empower Institute, which will conduct research on retirement issues.
The latest Empower research covers 4,004 workers — not restricted to Empower client participants — between the ages of 18 and 65. The online survey was conducted by Brightwork Partners and completed in January.