Workers Cite Biggest Financial Planning Regrets: Saving Too Little, Too Late in Early Working Years, According to Latest Principal Financial Well-Being Index
Sept. 13, 2006 (Des Moines, Iowa) — When it comes to saving for retirement, are American workers and retirees a day late and a dollar short? According to the latest Principal Financial Well-Being IndexSM, nearly half of American adult workers (45 percent) and a third of retirees (32 percent) surveyed indicated that their biggest financial planning regret was they started saving too late. Around one-quarter of respondents (27 percent of workers; 22 percent of retirees) said they regretted saving too little in their early working years. Others said they had regrets over going it alone and managing on their own when it comes to financial planning (9 percent of workers and 10 percent of retirees). The index, which surveys American adult workers at growing businesses with 10 to 1,000 employees, is released each quarter by the Principal Financial Group® and conducted by Harris Interactive®.
Live and Learn
When asked about the best lesson Americans learned from financial planning assistance, the greatest number of respondents (20 percent of workers; 19 percent of retirees) said diversifying their portfolio was the sagest advice. Another 16 percent of workers and 10 percent of retirees said investing the maximum in 401(k)/403(b) plans, IRAs or non-qualified plans was the best advice they've received.
"While we don't get a 'do-over' in terms of past savings behavior, the good news is, it's never too late to start and make a plan to sock away just a little bit more," said Dan Houston, executive vice president, Retirement and Investor Services, The Principal®. "It's even easier now with new legislation providing more automated and simplified solutions with advancements like automatic enrollment, automatic deferral step-up programs and lifecycle funds. The law also will make financial planning and investment guidance in the workplace more available."
Houston recommends that Americans shoot for saving up to 15 percent of their paychecks during their working years in order to replace 85 percent of their income in retirement. Yet only eight percent of the workers surveyed who participate in their company's 401(k) plan are saving this amount. Worse yet, 21 percent of those surveyed who are eligible to participate in their company's 401(k) plan do not currently participate at any level. The majority (42 percent) are saving between 5 percent and 10 percent of their paychecks.
Rollover Beethoven
It's a reality today -- workers switch jobs frequently. As a result, the Index addressed the rollover dilemma - what do workers do with their retirement savings when they switch jobs? Unfortunately, Houston said, 40 percent of workers said they took the money, cashing out the account rather than leaving the funds in that plan or rolling into another tax-advantaged savings plan. "Given the savings deficit and the tax hit impact of cashing out of defined contribution plans, it's clear that job hoppers need much more help and discipline when it comes to their retirement rollover strategy," said Houston.
What Keeps You Awake at Night?
When it comes to thinking ahead to retirement, many financial issues are keeping Americans awake at night. More than four in ten (43 percent) U.S. adult workers, and 26 percent of retirees, said the ability to afford good medical care keeps them awake at night, followed by being able to enjoy the same quality of life they live now (42 percent of workers), and being able to afford basic necessities in retirement (38 percent of workers). The issue cited most often by retirees (37 percent) is the rising cost of inflation reducing purchasing power. But when asked if they have a plan to transition retirement savings into a steady income in retirement, only 30 percent of workers and half (51 percent) of retirees do indeed have a plan.
"Just investing the time to plan for the retirement transition with help from a financial professional, or your employer and plan service provider, can make the difference between achieving financial well-being in retirement or not," said Houston. "It's alarming that less than half (48 percent) of those who are likely to retire in only 10 years or less (age 55-plus) have a transition plan."
Winning the Lottery
Yet Americans may show more resolve when it comes to suddenly hitting the jackpot, Houston said. When asked how they would spend a sudden financial windfall (from an inheritance, lottery or early retirement buy-out package), three quarters of workers (75 percent) and 38 percent of retirees said a priority would be to pay off any debts. Over half (58 percent of workers and 55 percent of retirees) said they would work with a financial adviser to figure out the best way to use the money; and 41 percent of workers and 30 percent of retirees said they would invest in mutual funds, IRA, annuity or stock market. A much smaller percentage of respondents indicated that they would use such a windfall to take an exclusive vacation (25 percent of workers; 15 percent of retirees), or spend the money on luxury items such as jewelry, car or a home (21 percent of workers; 10 percent of retirees).
Benefits Satisfaction, Things are Looking Up
More workers are currently satisfied with various employee benefits offered by their employers than in previous years. When asked how satisfied they are with their benefit programs (with "10" meaning very satisfied and "1" meaning not at all satisfied) the percentage of employees rating 8, 9, or 10 increased slightly in comparison to past quarters. More employees rated their satisfaction with defined benefit plans, where the employer funds the plan completely, as 8, 9 or 10 (56 percent versus 53 percent in the third quarter of 2004) compared to other benefits, followed by defined contribution plans (52 percent versus 50 percent in the third quarter of 2005), disability insurance (50 percent versus 43 percent in the third quarter of 2004), and life insurance (50 percent versus 45 percent in the third quarter of 2004).
Methodology
The Principal Financial Group commissioned Harris Interactive® to conduct online research with employees (ages 18+) of small and mid-sized (SMB) U.S. businesses (firm size 10 - 1,000 employees) about their attitudes and perceptions regarding their financial well being and their current employee benefits. To compare responses, Harris Interactive also interviewed a group of retirees. This survey was conducted online within the United States by Harris Interactive (on behalf of The Principal Financial Group) between August 2-21, 2006 among 1360 adults (aged 18 and over) and 721 retirees. Figures for age, sex, race/ethnicity, education, region and household income were weighted where necessary to bring them into line with their actual proportions in the population. Propensity score weighting was also used to adjust for respondents' propensity to be online. With a pure probability sample of 1360 for employees and 721 for retirees, one can say with 95% certainty that the results have a sampling error of plus or minus 2.7 percentage points for employees and of plus or minus 3.7 percentage points for retirees; however, this was not a probability sample. Sampling error for subsamples would be higher and would vary. However that does not take other sources of error into account. This online survey is not based on a probability sample and therefore no theoretical sampling error can be calculated. This is one in a series of quarterly studies to identify and track changes in the workplace of small and mid-sized businesses. The first Principal Financial Well-Being IndexSM survey was conducted in the United States in 2000.
About the Principal Financial Group
The Principal Financial Group® (The Principal®)1 is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance and banking through its diverse family of financial services companies and national network of financial professionals. A member of the Fortune 500, the Principal Financial Group has $206 billion in assets under management2 and serves some 16.3 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
About Harris Interactive
Harris Interactive is the 12th largest and fastest-growing market research firm in the world. The company provides research-driven insights and strategic advice to help its clients make more confident decisions which lead to measurable and enduring improvements in performance. Harris Interactive is widely known for The Harris Poll, one of the longest running, independent opinion polls and for pioneering online market research methods. The company has built what could conceivably be the world's largest panel of survey respondents, the Harris Poll Online. Harris Interactive serves clients worldwide through its United States, Europe and Asia offices, its wholly-owned subsidiary Novatris in France and through a global network of independent market research firms. The service bureau, HISB, provides its market research industry clients with mixed-mode data collection, panel development services as well as syndicated and tracking research consultation. More information about Harris Interactive may be obtained at www.harrisinteractive.com.
1) "The Principal Financial Group" and "The Principal" are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
2) As of June 30, 2006.
