A new Empower Retirement study seeks to better understand
participants’ savings habits and levels of involvement with retirement
planning, as well as where they are turning for help after two challenging
years.
Empower Retirement’s “Empowering America’s Financial
Journey” study analyzed the behavior of about 4 million active defined
contribution (DC) participants in corporate retirement plans from for-profit
organizations that use Empower Retirement as their recordkeeper. The study
evaluated the attitudes, confidence and sentiments related to retirement and
financial planning through a separate survey of more than 2,500 Americans.
On average, Empower finds that participants are saving at
recommended levels of 10% to 15%, including both employer and employee
contributions. Excluding any employer matches, employees are putting away 8.2%
of their salary into workplace retirement plans—a number that’s been trending
upward over the past two years. There has been a strong recovery in
participants’ contributions to their plans from pandemic lows, with 85% of those
eligible contributing.
Three in five workers believe they are saving enough in
their 401(k) plans. The study indicates that average worker savings rates are
higher now (8.2%) than they were pre-pandemic, in the fourth quarter of 2019
(7.8%).
With the oldest members still only 24 years old, Generation
Z accounts for the highest proportion of contributing participants in their
defined contribution plans—even higher than working Baby Boomers who are
fast-approaching retirement. Millennials have the highest rate (24%) of Roth
usage across generations, and, across the board, those making Roth
contributions are also saving at a higher rate than people who aren’t (10.2%
and 7.9%, respectively).
Although Americans are saving more on average, there are
many who still face challenges meeting their retirement needs. Troubles making
ends meet and paying back debt, the most-cited challenges workers face, mean
that 36% of workers say they aren’t saving enough. Managing finances is
especially challenging for those making less than $60,000, with 45% of those in
that group saying they are not contributing enough to their 401(k) plans and
61% saying that making ends meet is limiting their ability to save.
Participants with incomes greater than $120,000 have saving rates that are
significantly higher than those with incomes of less than $60,000.
Empower also looked at participants’ engagement rate,
measured by interactions with Empower’s customer care center or with an Empower
adviser, website or mobile app—seen as an important part of the user
experience—over the past 12 months. Here, the study suggests that 67% of
participants were actively engaged with their retirement and financial
planning, up from 65% a year ago. Participants who engage with their retirement
plan in this way save more than those who aren’t engaged (9.2% compared with
5.7%). This difference is seen across all income segments but is more
significant for those making less than $60,000 a year.
More than half (52%) of those surveyed said they used tools and
information from their 401(k) provider’s website to make financial and
retirement decisions. The study shows that as web interactions rise, so do
saving rates. Plans without automatic enrollment have the highest engagement
rates, likely driven by the fact that enrollment requires engagement, but these
plans have a smaller proportion of contributing participants. Participants
automatically enrolled into a plan that also offers auto-escalation features
have the second-highest engagement rates.
According to the study, less than half of those surveyed
(48%) say they are comfortable making investment decisions. Millennials were
the most comfortable at 56%, followed by Gen X members at 48%, Baby Boomers at
42% and Gen Z members at 39%. Empower says the complexities associated with
planning as people get closer to retirement may play a role in these attitudes,
as only one in three Baby Boomers say they have a high level of investment
knowledge.
Recent research shows that people of all ages are seeking
more help with financial wellness and retirement savings and planning, and many
are interested in financial wellness help from financial advisers. Empower says
the top reasons across generations that people seek advice for the first time
are for retirement (67%), paying off debt (35%) and building an emergency fund
(28%). The top three reasons people seek financial advice or educational
information include saving for retirement (51%), overall financial planning
(42%) and choosing which funds to invest in and how much to invest (38%).
The percentage of participants using web guidance
interactions or “help me do it” interactions is higher for younger participants
and almost doubles between the ages of 20 and 25. Usage then flattens out until
participants are close to age 60 and drops by age 70.
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