Reflections in the Mirror: Defined contribution plan participants offer their perspectives and perceptions around retirement savings 2014 FINDINGS OF NATIONAL PLAN PARTICIPANT SURVEY Non-FDIC Insured May Lose Value No Bank Guarantee
EXECUTIVE SUMMARY Policymakers, employers and academics are working to encourage higher savings rates among working Americans. Defined contribution plans are important retirement savings vehicles for many employees and may constitute the primary source of retirement income for a majority of Americans. Through this study, defined contribution plan participants were questioned about their attitudes around retirement saving. Participants were broken into two groups, pre-retirees aged 55-65 and workers between 25 and 54. The primary goal of the study was to better understand why participants delay saving for retirement, how those barriers can be overcome, and, ultimately, how plan participants can avoid having regrets about their savings behavior once they reach their pre-retiree years. The study revealed that plan participants acknowledge the importance of saving along with the potential consequences of not doing so. However, they also recognize their own tendencies and habits. Daily life gets in the way of saving for the future. Participants concede that they aren t saving enough when left to their own devices, and, if their employers establish parameters to foster saving, they would stay within those boundaries. Hindsight is 20/20 Saving for retirement is a top priority for most people in the study, but they do wish they could have started earlier or done more to further their preparation. Nearly two-thirds of 55- to 65-year-olds and six in ten 25- to 54-year-olds regret not doing a better job of saving money for retirement. They also express regret about not studying investing more or seeking the advice of a financial advisor. A majority of participants, particularly older participants, have at least some regret about not doing a better job saving for retirement. Thinking about the job you have done in saving money for retirement, how much regret do you have about not doing better? 43% 41% 3 2 1 2 A great deal Some Little None (n=1,007) (n=612) Large majorities of participants across age groups wish they had saved more in the first five years of their working lives. Very few express the same regret over any other time period. Over six in ten 55- to 65-year-olds and half of 25- to 54-year-olds say that they saved much less than they should have in the first five years they worked. 1 Non-FDIC Insured May Lose Value No Bank Guarantee
Both older and younger participants identify the first five working years as the key time that they saved too little for retirement. In each of the following periods, how would you evaluate your level of retirement savings? The first five years you worked (n=1,007) (n=612) 61% 1 16% 49% 2 19% 7% The years in between The last five years you worked (n=885) (n=352) (n=885) (n=352) 13% 40% 7% 41% 9% 19% 4 17% 6% 49% 13% Currently (n=122) (n=260) 1 36% 36% 43% Saved much less than should have About what you should have Much more than you should have 1 6% Somewhat less Somewhat more Did not work In fact, more than seven in ten 55- to 65-year-olds and over six in ten 25- to 54-year-olds say that they saved as much or more than they should have in the past five years; close to half feel this way about the in-between years. In general, three out of four 55- to 65-year-olds and two out of three 25- to 54-year-olds concede that they underestimated how much they should be saving for retirement. Roughly half admit that not saving for retirement was one of the biggest mistakes of their lives. Expressing self-awareness A large majority of both age groups say that if they could have talked to themselves in their early career, they would have advised themselves to save more. However, a majority admit that they would have been only somewhat likely to listen at that age. If you could talk to yourself in your early career, how important would it be to advise yourself to save more? 57% 51% 6% 9% 3% Very Somewhat Not too Not at all important important important important (n=1,007) (n=612) How likely do you think your early career self would have been to listen to that advice? (If important to advise yourself to save more) 13% 1 Very likely 56% 51% Somewhat likely 31% 2 Not too likely 1% Not at all likely (n=1,007) (n=612) Non-FDIC Insured May Lose Value No Bank Guarantee 2
EXECUTIVE SUMMARY A significant majority concede that they could have saved at least a little more in the past and acknowledge that they are currently able to save at least a little more. Given your finances Over the years, how much more could you have afforded to save? 41% 2 3 33% Would you currently be able to save? 40% 39% 31% 9% 3% (n=1,007) (n=612) (n=1,007) (n=612) Much more Somewhat more A little more No more Over half of 55- to 65-year-olds and six in ten 25- to 54-year-olds note that they are saving less than they need to. Well over three-quarters of plan sponsors suggest employees are saving too little. When looking to your future needs, how would you evaluate your overall level of saving at this time? Saving a lot more than you need to 1% 3% <. Saving a little more than you need to 3% 9% Saving about what you need to 1 3 Saving a little less than you need to 31% 4 Saving a lot less than you need to 3 Not sure, 2014 (n=1,007), 2013 (n=1,054) (n=612) Plan Sponsor* (n=310) *Plan sponsor evaluation of employees 3 Non-FDIC Insured May Lose Value No Bank Guarantee
Participants give themselves roughly a C+ on putting money away for retirement and on investing. Overall, participants give themselves a C+ average in saving. However, the numbers are slightly higher when asked to grade themselves about investing. Only one in ten strongly agrees that they knew what they were doing with their investments. Although, nearly six in ten 55- to 65-year-olds and half of 25- to 54-year-olds agree that they knew what they were doing at least to some extent. Thinking about all of your years of employment, how would you grade the job you did in putting money away for retirement given your resources and circumstances? Thinking about all of your years of investing in retirement plans, including your current plan and plans with previous employers, how would you grade the job you did in investing your retirement plan money? A 9% 7% A 7% 7% B C D F 1% 1 13% 1 36% 3 36% 36% 39% 4 Average 55-65,2014: 3.37 (C+) Average 55-65, 2013: 3.33 (C+) Average 25-54: 3.26 (C+) Average Plan Sponsor: 3.35 (C+) B C D F 1% 3% 9% 7% 43% 4 36% 4 Average 55-65, 2014: 3.42 (C+) Average 55-65, 2013: 3.51 (B-) Average 25-54: 3.41 (C+) Average Plan Sponsor: 3.45 (C+), 2014 (n=1,007), 2013 (n=1,054) (n=612) Plan Sponsor* (n=310) *Plan sponsor evaluation of employees To what extent do you agree or disagree with the following statement?, 2014 (n=1,007) 47% When it came to investing my retirement plan money, I knew very well what I was doing, 2013 (n=1,054) (n=612) Plan Sponsor* (n=310) 1 4 39% 9% 41% Strongly agree Somewhat agree *Plan sponsor evaluation of employees Non-FDIC Insured May Lose Value No Bank Guarantee 4
EXECUTIVE SUMMARY Life gets in the way Not earning enough at their jobs, debt, and unexpected expenses are the biggest reasons participants do not save more. Participants identify a wide range of expenses that impede saving, including those associated with children, vacations, eating out at restaurants, and everyday items. Those 55-65 are more apt to point to expenses associated with children as being top reasons, while those 25-54 are more likely to name dining and everyday expenses as the key barriers to saving. Please indicate if the following are reasons for you (and your spouse/partner) not saving more money now (among those who reported saving less or not sure level of saving). Primary Reason You do not earn enough at your job You have to pay off debts You have had unexpected expenses You are more focused on enjoying today than on saving for the future You have simply put it off You are unsure about how to invest the money You are not getting good advice about how much to save 51% 46% 5 50% 69% 81% 80% 76% 7 7 86% 41% 6% 3% <. 1% (n=509) (n=358) Looking back, how big a factor was each of the following priorities in preventing you from saving more for retirement? Living expenses associated with your children Spending on vacations Saving for/spending on a child's college education Spending on restaurants Paying too much on everyday expenses such as coffee, movie rentals, etc. Paying more for cars than you should have Having more house than you could afford Spending on more expensive clothes than you should have 36% 3 4 43% 4 51% 4 4 6 57% 60% 61% 67% (n=1,007) (n=612) 5 Non-FDIC Insured May Lose Value No Bank Guarantee
Despite having conflicting financial priorities, participants realize the importance of saving for the future, and most are more concerned about not having enough money in retirement than they are about enjoying today less. Approximately two in three express more concern about not having enough money in retirement. Perhaps not surprisingly, more than eight in ten of those aged 55-65 see retirement as either the biggest or one of the biggest goals, while fewer, seven in ten 25- to 54-year-olds feel this way. When you think about saving for future goals, how big a goal is retirement savings to you? 47% 5 2 The only goal 1 The biggest goal One of the biggest goals 1 7% <0. <0. A fairly important goal (n=1,007) (n=612) Not an important goal More than nine in ten agree that saving more for retirement will allow them to better handle the challenges they face when they get there, including nearly half who strongly agree. To what extent do you agree or disagree with the following statement: If I save more for retirement, I will better handle the challenges I might face when I get there. 4 47% 4 4 (n=1,007) Strongly agree Somewhat agree (n=612) Non-FDIC Insured May Lose Value No Bank Guarantee 6
EXECUTIVE SUMMARY Setting expectations about retirement Most participants do not anticipate a serious decline in their standard of living in retirement; instead, most expect to take steps to improve their retirement prospects, suggesting that perhaps the nest egg alone might not be enough. Two out of three 55- to 65-year-olds and three out of four 25- to 54-year-olds believe that their standard of living in retirement will be as least as good as it is now. By an overwhelming margin, participants think it is far worse to have too little money in retirement than to lose the opportunity to enjoy money today. Financially speaking, do you expect your standard of living in retirement will be? Much better than it is now A little better than it is now About the same as it is now A little worse than it is now Much worse than it is now 1 1 29% 49% 57% (n=1,007) (n=612) Still, most say it is at least somewhat likely they will take a number of steps to improve their prospects. Paying off loans and mortgages are the most common strategies. Significant majorities also say that it is at least somewhat likely they will work longer, work part-time, or cut back on spending. How likely are you to do each of the following to improve your retirement prospects? Pay off loans and household debts 4 5 19% Work part time in retirement 26% 4 49% 17% Pay off your mortgage 19% 13% Work longer 2 31% 39% 26% 2 13% 7% Cut back on daily spending now to get used to a more modest standard of living 19% 19% 40% 4 31% 29% Downsize big ticket items like houses or cars 21% 1 13% Cut back on daily spending now to increase retirement savings 16% 17% 39% 43% 3 3 7% Very likely Not too likely Somewhat likely Not at all likely The 55- to 65-year-old participants are a little more worried about unexpected life events affecting them than they are about the economy, while 25- to 54-year-olds worry equally about both. 7 Non-FDIC Insured May Lose Value No Bank Guarantee
Which do you think is the biggest factor in not being able to predict how much money you will need in retirement? Unexpected life events such as health and longevity The economy and the financial markets Government policy on taxes and healthcare Other N/A, I can predict my retirement funds accurately 1% 1 41% (n=1,007) (n=612) 4 43% Which statement comes closest to your belief about these consequences? A is far worse than B A is somewhat worse than B Both are equally bad B is somewhat worse than A B is far worse than A 6% 2 26% A: You can save too much and lose the opportunity to enjoy your money now B: You can save too little and not have enough money in retirement 40% 41% (n=1,007) (n=612) Evaluating employers Overall, participants give their employer a grade of B- when it comes to providing a plan that gives them the opportunity to save, invest, and accumulate retirement savings. Participants generally value the availability of a defined contribution plan as an important vehicle to prepare for the future. Nearly seven in ten 55- to 65-year-olds and three in four 25- to 54-year-olds give their employer a B or C in this area. Less than one in five 55- to 65-year-olds and one in eight 25- to 54-year-olds give their employer an A. The 55- to 65-year-olds group tends to give somewhat higher grades in general. Plan sponsors give themselves higher grades than participants do. One-fifth gives themselves an A and another 63% give themselves a B. Non-FDIC Insured May Lose Value No Bank Guarantee 8
EXECUTIVE SUMMARY How would you grade the job that your employer has done providing a retirement plan that offers you the opportunity to save, invest, and accumulate retirement savings? 2 1 1 41% 39% 63% 2 13% A B C D F, 2014 (n=1,007) (n=612) Plan Sponsor* (n=310) *Self rating on job managing defined contribution plan Average 55-65: 3.61 (B-) Average 25-54: 3.49 (C+) Average Plan Sponsor: 4.06 (B+) 7% 0% Looking to employers for at least a nudge Only a minority of participants report that companies have, to a large extent, done what they could to encourage savings; a majority suggest they would save more if the employer did more to encourage them. Less than two in five 55- to 65-year-olds and roughly one in three 25- to 54-year-olds report that their companies, either to a large extent or completely, have done everything they could to encourage them to save for retirement. To what extent do you feel your employer or employers have done everything you needed them to do to encourage you to save for retirement? Assuming your employer had done everything you felt was important to do, how much more might you now have in retirement savings? (Among those who do not feel employer has done everything needed to encourage saving for retirement) Completely To a large extent To some extent Slightly Not at all 9% 9% 7% 1 2 3 A great deal more than you have now Somewhat more than you have now Slightly more than you have now No more than you have now 17% 1 2 39% 21% 1 (n=1,007) (n=918) (n=612) (n=561) Perhaps in recognition of their own behaviors, participants look to their employers to set up some boundaries to help them save. When asked what role they would like employers to play in encouraging them to save for retirement, two in five ask for a slight nudge, while an additional two in five prefer either a strong nudge or a kick in the pants. Only one in six would like the employer to leave [them] alone. 9 Non-FDIC Insured May Lose Value No Bank Guarantee
In contrast, plan sponsors greatly underestimate the employee interest in garnering more encouragement. Plan sponsors believe three in ten employees want to be left alone, and only one-quarter desire more than a slight nudge. Which best describes what you would like your employer to do for you when it comes to encouraging you to save more for retirement? 41% 4 3 1 17% 16% A kick in the pants A strong nudge A slight nudge Leave you alone (n=1,007) (n=612) *Median % of employees plan sponsors believe want each level of encouragement Plan Sponsor* (n=310) Participants are very receptive to automatic enrollment. A majority recognize that having automatic enrollment would result in at least some increase in savings, including roughly two in five who believe it would have caused at least a moderate increase in their savings. Imagine all of the retirement plans you were eligible for had automatic enrollment. How would that have changed the amount of your retirement savings today? Would it have led to: 39% 17% 1 2 2 1% 1% A major increase A moderate increase A minor increase No impact A decrease Both pre-retirees and the broader participant group favor a higher default contribution rate. More than six in ten agree that the company they work for should have a 6% automatic enrollment. (n=1,007) (n=612) Suppose the company you worked for has an automatic enrollment option where 6% got taken out of employees paychecks automatically for their retirement plans. Is this something the company: Should do 63% 6 Should not do (n=1,007) (n=612) Non-FDIC Insured May Lose Value No Bank Guarantee 10
EXECUTIVE SUMMARY More than four in ten participants estimate that automatic enrollment would have a bigger impact on employee savings than requiring non-contributing employees to check off a box as to whether or not they want to contribute. Less than a quarter feel the other way, but over one-third suggest both would have equal impact. Plan sponsors are also more likely to say automatic enrollment is more effective than checking off a box, but the difference between the two options is much smaller (four in ten, compared with three in ten). A different way to encourage participation is to require the employees who do not contribute to check off a box each year as to whether or not they want to participate in their company s 401(k) plan. If they check yes they can either allow a default amount to be put in or specify an amount they would like. Which do you think will do more to encourage employees to participate? 4 40% 4 29% 3 29% Automatic enrollment where an amount will be put in the plan unless the employee specifies otherwise Requiring non-contributing employees to check off a box each year as to whether or not they want to contribute Both would have an equal impact (n=1,007) (n=612) Plan Sponsors (n=310) Furthermore, automatic increase is an attractive feature to participants. Seven in ten are at least fairly interested in having a program that would increase their savings by 1% every year. Roughly eight in ten note that if they had automatic increases, it would have increased their retirement savings. A somewhat smaller percentage of plan sponsors find automatic enrollment and automatic increases to be important. A large majority underscore the importance of employers showing them the income that savings can produce, annual reviews, retirement accumulation projections, and projection calculators. However, only about half say that their employers offer projections, calculators, or educational seminars. 11 Non-FDIC Insured May Lose Value No Bank Guarantee
How important do you think each of the following employer actions are in encouraging employees to save more for retirement? Showing the income that various levels of savings will produce in retirement Plan Sponsor 29% 41% 47% 4 Providing annual reviews that show how on track employees are toward their retirement goal Plan Sponsor 3 33% 36% 4 4 4 2 Providing projections of what employees might accumulate by the time they retire Plan Sponsor 43% 39% 40% 21% Providing retirement calculators that 3 41% employees can use to test out what 4 2 various contributions and returns will produce in retirement Plan Sponsor 31% 4 2 Extremely important Somewhat important Very important Not important Plan sponsors view model portfolios and seminars as slightly more important than employees do. Employees place more importance on automatic enrollment and increases than employers. How important do you think each of the following employer actions are in encouraging employees to save more for retirement? Providing model portfolios that show how employees with different risk appetites and age might invest their money Plan Sponsor 2 4 41% 4 6% 3% Providing educational seminars and materials Plan Sponsor 2 4 39% 46% 31% 3% 3 7% 3% Having automatic enrollment Plan Sponsor 31% 3 2 3 7% 31% 1 3 16% Having automatic increases each year in amount invested Plan Sponsor 21% 33% 36% 1 29% 13% 2 1 2 Having automatic investment portfolio that employees will be placed in unless they specify otherwise Plan Sponsor 21% 19% 17% 31% 3 40% 3 1 Extremely important Somewhat important Very important Not important Two in three wish the plan provider would make a greater effort to come to the workplace and educate them. Non-FDIC Insured May Lose Value No Bank Guarantee 12
EXECUTIVE SUMMARY Advisors play a role, especially going forward Close to half of 55- to 65-year-olds and a quarter of 25- to 54-year-olds report that they currently have a financial advisor. Among those who have an advisor, only about three in ten have relied on the advisor a great deal. However, roughly two-thirds in each age group expect the advisor to play a major role going forward when it comes to preparing for retirement. However, similar numbers of participants also point to their own research as playing a major role, particularly among younger participants. Going forward, how big a role will each of the following play in providing information and support that will help you prepare for retirement? A professional financial advisor (n=500) (n=177) 67% 6 3 9 9 Your own research (n=1,007) (n=612) 61% 71% 2 96% 9 Your employer (n=1,007) (n=612) 2 3 59% 59% 83% 90% Family (n=1,007) (n=612) 19% 4 56% 1 5 66% Friends and colleagues The government (n=1,007) (n=612) (n=1,007) (n=612) 6% 50% 56% 1 5 66% 1 39% 51% 1 4 59% Major role Minor role Summary Plan participants recognize the importance of saving for the future and the risks of not having enough in retirement. At this point, however, other more immediate financial priorities present barriers to saving. As a result, participants support their employers establishing a solid framework for saving including automatic enrollment at a 6% contribution rate coupled with automatic increase to encourage saving. They are selfaware and realize the nudge from their employers will help them succeed, although employers are less likely to feel the same way. In the future, they will look to financial advisors along with their own research to ensure a successful retirement. 13 Non-FDIC Insured May Lose Value No Bank Guarantee
Non-FDIC Insured May Lose Value No Bank Guarantee 14
Actively Investing in Your Success SM Performance is what our clients expect, and we believe the ultimate measure of our performance is the quality of the relationship with our clients. Our culture is firmly rooted in the principles of discipline, integrity and teamwork. We relentlessly focus on delivering superior investment performance and building long-term client relationships. Four foundational characteristics help us deliver on our commitment: Performance focus for 55 years Pure play business model Privately controlled and independent Profits with a purpose Survey Methodology The survey was conducted between February 8 and 18, 2014. Respondents included full-time workers between ages 25 and 65, participating in their employer s retirement plan for at least the past 5 years, intending to retire at some point and not working for the government. A total of 1,619 respondents completed the survey. The data were weighted to reflect the makeup of key demographics (gender, income, and education) among all American private sector plan participants between the ages of 25 and 65 (according to estimates from the 2012 U.S. Consumer Population Survey). Data collection and analysis were completed by Mathew Greenwald and Associates, Inc., of Washington, D.C. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice. American Century Investment Services, Inc. 2014 American Century Proprietary Holdings, Inc. All rights reserved. IN-BRO-82091 1405 P.O. Box 419385 Kansas City, MO 64141-6385 1-800-345-6488 americancentury.com Non-FDIC Insured May Lose Value No Bank Guarantee