Participants of defined contribution plans are saving too little and withdrawing too much, according to a report by J.P. Morgan Asset Management.
The report showed that may plan participants are starting average contributions at the minimum rate of 3.3% rate but failing to increase this rate over time. Meanwhile, only wealthier participants at the higher end of the average contribution rate spectrum are even approaching the recommended savings rate of at least 10%.
And not only are participants not saving enough, middle income earners are most likely to take a loan from retirement accounts, while the average participant withdrew more than 55% in any given year at or soon after retirement. Just 28% of participants remain in their retirement plans three years after retirement, according to the report.
"Many plan participants still aren't positioned for retirement income success despite the efforts of plan sponsors, their advisers and plan providers," Anne Lester, portfolio manager and global head of retirement solutions at J.P. Morgan Asset Management, said in a news release.
This year's report identified and analyzed "the wide variation in behavior across income groups, demonstrating the need for plan sponsors to take into account the personal nature of retirement saving and spending in plan design," according to Ms. Lester.
As a result of these findings, JPMAM's report suggests that plan sponsors may want to look beyond getting employees into the plan by implementing automatic contribution escalation programs at a much higher rate increase than currently used. In addition, educational efforts should focus on moderate and low wage earners.