Participants in 401(k) retirement plans who work with financial advisors save more and have clearer financial goals than their peers, according to a study by Natixis Global Asset Management. Overall, however, the study shows many workers – including those close to retirement – aren’t on track to meet the savings targets they’ve set for themselves. The results, based on a survey of 1,000 respondents, of which 899 were enrolled in 401(k) programs, also show participants who have advisors are more aggressive.
The survey found:
- Participation is substantial: 90 percent of respondents eligible to participate in 401(k)s are making contributions. Tax incentives, matching contributions by employers and automatic enrollment are factors in the high participation rate.
- Contributions rise with advice: On average, workers contribute 8.6 percent of their salaries to their 401(k)s. Advised investors put in 9.5 percent, compared with 7.8 percent by those without advisors.
- Advised investors have targets: 74 percent of advised participants say they know what their 401(k) balance should be by the time they retire; 54 percent of workers without advisors say the same.
“Our research shows that Americans save for retirement when they have access to 401(k) plans and those who use advisors are typically more engaged investors,” said John Hailer, CEO of Natixis Global Asset Management in the Americas and Asia. “We need to look for opportunities to expand the availability of 401(k) plans and encourage current participants to better understand their retirement income needs. Investors, plan sponsors, financial advisors and the government all have roles to play in helping to solve retirement planning challenges.”
Retirement savings shortfall
Participants are motivated to put money into their 401(k)s because of tax incentives; incentives offered by their employer, such as matching contributions; and the ease of using the plans to save for retirement in a disciplined way. Nearly one-third (29%) say their employer automatically steps up their contribution levels over time.
Even with the generally encouraging level of savings, many participants aren’t on course to meet their self-identified retirement savings targets. The potential shortfall is especially notable among Baby Boomers, those from ages 50 to 67. Many lacked access to retirement plans earlier in their careers – or, if they did have it, contributed less to their 401(k)s than they do now.
The survey found:
- Boomers lag: 33 percent of Boomers have put aside less than $50,000. In comparison, 41 percent of participants in the Millennial or Generation Y group (those from ages 18 to 33) already have put aside $50,000.
- Failure to keep pace: Baby Boomers have saved an average of $262,541, about a third of the $805,398 they predict they’ll need at retirement.
- Younger investors also struggle: Members of Generation X (ages 34 to 49) have saved $206,866 toward their goal of just over $1 million. Millennials average $91,215 in their plans; they say they’ll need $822,000 for retirement (a target which may be too low, given their ages).
“Investors of all ages should take a second look at how much they save and what their needs are likely to be when they retire,” Hailer said. “While many workers get it right, others might ask if their investing targets will get the job done. Too many seem to be setting the bar too low because they may lack access to the proper tools, education and guidance.”
Without advice, education and tools may not be enough
Workers say their employers provide a great deal of retirement information and tools. Among the most popular materials available to them are printed education documents, retirement calculators and interactive planning tools. However, relatively few investors make full use of the offerings.
The most popular tool on many 401(k) websites – a retirement income calculator – has been used by only 38 percent of participants. Likewise, 51 percent say their employers offer personalized performance benchmarks, such as displaying a rate of progress toward a retirement savings goal. But only 23 percent acknowledge using them.
Part of the reason for the disconnect is that some investors don’t understand the information put before them:
- Many are confused: 43 percent say their employer’s materials are difficult to understand. Those working without advisors are more likely to have issues with their employer’s information (49%, compared with 37% of those who do use advisors).
- Uncertainty about investments: 33 percent don’t know where their money is being invested.
- A desire to learn: 48 percent say that, if they understood their plans better, they would consider increasing their contributions.
“While many participants say they would contribute more money to their 401(k)s if they were more knowledgeable, they aren’t taking advantage of the tools available to them, suggesting that education and tools without advice may not be enough,” said Ed Farrington, executive vice president for retirement and business development for Natixis.
The results show that participants who use financial advisors are better prepared to set retirement savings targets and are more engaged in planning and investment decision-making. For example, the study found 71 percent have spoken to their advisor about the level of contributions adequate for meeting their retirement goals.
“From our view, advisors can add enormous value to plan sponsors and participants by helping to fill the gap between setting and achieving retirement savings goals,” added Farrington.
Expanding 401(k) coverage
Eighty-four percent of plan participants say their 401(k) accounts will be their biggest source of retirement income. However, many American workers don’t have access to an employer-sponsored retirement program.
“Policymakers should consider ways to make it easier for small businesses to offer 401(k) plans and to bring benefits to part-time workers,” Farrington said.
Natixis’ 401(k) plan research was conducted online in May 2014 with 899 active 401(k) plan participants in the United States. Of the active participants, the age groups are broken up as follows: 249 Gen Y (18-33 years old), 335 Gen X (34-49 years old), 308 Baby Boomers (50-67 years old). There were 427 advised participants and 472 of non-advised participants. The minimum income level required for survey respondents was $15,000.
About Natixis Global Asset Management, S.A.
Natixis Global Asset Management, S.A. ranks among the world’s largest asset managers based on assets under management.1 Its affiliated asset management companies provide investment products that seek to enhance and protect the wealth and retirement assets of both institutional and individual investor clients. Its proprietary distribution network helps package and deliver its affiliates’ products around the world. Recognized as the #1 U.S. mutual fund family for 2013 performance in the annual Barron’s/Lipper Fund Family Ranking,2 Natixis Global Asset Management, S.A. brings together the expertise of multiple specialized investment managers based in Europe, the United States and Asia to offer a wide spectrum of equity, fixed-income and alternative investment strategies.
Headquartered in Paris and Boston, Natixis Global Asset Management, S.A.’s assets under management totaled $930.5 billion (€679.5 billion) as of June 30, 2014.3 Natixis Global Asset Management, S.A. is part of Natixis. Listed on the Paris Stock Exchange, Natixis is a subsidiary of BPCE, the second-largest banking group in France. Natixis Global Asset Management, S.A.’s affiliated investment management firms and distribution and service groups include Absolute Asia Asset Management; AEW Capital Management; AEW Europe; AlphaSimplex Group; Aurora Investment Management; Capital Growth Management; Darius Capital Partners; Gateway Investment Advisers; H2O Asset Management; Hansberger Global Investors; Harris Associates; IDFC Asset Management Company; Loomis, Sayles & Company; McDonnell Investment Management; Mirova Asset Management; Natixis Asset Management; Ossiam; Natixis Environnement & Infrastructure Luxembourg; Reich & Tang Asset Management; Snyder Capital Management; Vaughan Nelson Investment Management; Vega Investment Managers; and Natixis Global Asset Management Private Equity, which includes Seventure Partners, Naxicap Partners, Alliance Entreprendre, Euro Private Equity, Caspian Private Equity and Eagle Asia Partners. Visit ngam.natixis.com for more information.
1 Cerulli Quantitative Update: Global Markets 2014, ranked Natixis Global Asset Management, S.A. as the 16th largest asset manager in the world based on assets under management as of December 31, 2013.
2 Barron's/Lipper 2013 one-year fund family ranking based on 64 qualifying U.S. fund companies. Each fund family must have at least three funds in Lipper's general U.S.-stock category, one world (global and international), one mixed-asset/balanced (stocks and bonds), two taxable bond and one tax-exempt bond fund. Natixis was not ranked for the 5- and 10- year periods. Past performance is no guarantee of future results.
3 Assets under management (AUM) may include assets for which non-regulatory AUM services are provided. Non-regulatory AUM includes assets which do not fall within the SEC’s definition of ‘regulatory AUM’ in Form ADV, Part 1.
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David Snowden, 617-449-2507