401(k) Contributions Rise Along with Concerns over Future of Social Security
Despite Social Security worries, Americans are more optimistic about economy in 2011
December 8, 2010 (Des Moines, IA) - Contributions to 401(k) plans increased in the last year, underscoring increased efforts by American workers to improve their financial well-being, according to the the Principal Financial Well-Being IndexSM.
The Principal Financial Well-Being Index, which surveys both American workers at growing businesses with 10 to 1,000 workers and retired Americans, is released quarterly by the Principal Financial Group® and is conducted online by Harris Interactive®.
Eighty-five percent of workers who are eligible for defined contribution retirement plans reported that they are currently participating, up from 81 percent of workers a year ago. When asked what changes they have made, if any, to their 401(k) account due to current economic conditions, 18 percent reported that they have increased their contributions compared to 13 percent in the fourth quarter of 2009.
Meanwhile, 45 percent of workers and 43 percent of retirees are either very concerned or extremely concerned about the future of Social Security. While a third of retirees (32 percent) said Social Security is their primary source of income, nearly half (48 percent) said it is a secondary source of income. Significantly, 69 percent of those working today expect Social Security to be a secondary source of retirement income.
When asked how they would manage if Social Security were to fail, 46 percent of workers said they would remain in the workforce longer, up significantly from 40 percent in Q4 2007, the last time the survey question was asked. Twenty percent said they would phase into retirement, down from 26 percent in 2007, and another 14 percent said they would lower their standard of living, an increase of 4 percentage points over 2007.
"With mounting worries about Social Security, it appears that fewer workers are staking their future on the system and are considering alternatives, which for many means putting more money in a defined contribution plan," said Luke Vandermillen, vice president of retirement and investor services at The Principal®. "On a positive note, it may be a sign the economy is improving that some workers are comfortable increasing their 401(k) contributions instead of dipping into retirement savings to cover daily expenses."
Americans hopeful about 2011 with solid New Year's resolutions in place
With 2011 on the horizon, many Americans are feeling more optimistic. Forty percent of workers and 39 percent of retirees think the economy will improve to some degree in the next year, both significant increases from third quarter 2010. The percentage of workers who are extremely happy with their current financial well-being is up significantly to 31 percent from 19 percent from last quarter.
This optimism is reflected in actions Americans plan to take to improve their overall financial well-being in the New Year. Twenty-nine percent of workers are optimistic about the economy and their ability to rebuild their finances, up from 21 percent from last quarter. Twenty-four percent of retirees said they were optimistic, twice as many as last quarter.
When asked about any financial resolutions for the New Year, the top two selected by workers were plans to pay off credit card debt (35 percent) and put a set amount of money into savings each month (30 percent). Retirees' top resolution was to reduce their spending by a specific amount each month (19 percent) followed closely by paying off credit card debt (17 percent) and putting a set amount of money into savings each month (15 percent).
"We are seeing some confidence return as Americans are starting to feel better about their finances and the economy, which is resulting in some positive behavior for long-term savings. While the road may still be bumpy, many Americans are taking personal responsibility to improve both their short and long term financial well-being," said Vandermillen.
Key findings on holiday spending plans:
- Due to the economy, 41 percent of workers and 39 percent of retirees said they would spend less per gift this holiday season. Thirty-eight percent of workers and 31 percent of retirees will scale back on the number of people for which they buy gifts.
- Twenty-two percent of workers and 24 percent of retirees will be traveling less this holiday season.
- Sixty-one percent of workers and 57 percent of retirees plan to spend the same amount of money as they did last year for the holidays. Fewer workers (31 percent compared to 46 percent in 2009) and fewer retirees (39 percent compared to 46 percent in 2009) plan to spend less money than they did last year for the holidays.
This Principal Financial Well-Being IndexSM survey was conducted online within the United States by Harris Interactive on behalf of the Principal Financial Group® Oct. 20-28, 2010, among 1,159 employees and 528 retirees. Results were weighted as needed for age by gender, education, race/ethnicity, region and household income. Propensity score weighting was also used to adjust for respondents' propensity to be online. A full methodology is available.
This is one in a series of quarterly studies to identify and track changes in the workplace of small and mid-sized (growing) 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®) 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. A member of the Fortune 500, the Principal Financial Group has $305.7 billion in assets under management and serves some 18.9 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 one of the world's leading custom market research firms, leveraging research, technology and business acumen to transform relevant insight into actionable foresight. Known widely for the Harris Poll and for pioneering innovative research methodologies, Harris offers expertise in a wide range of industries, including health care, technology, public affairs, energy, telecommunications, financial services, insurance, media, retail, restaurant and consumer package goods. Serving clients in more than 215 countries and territories through its North American, European and Asian offices and a network of independent market research firms, Harris specializes in delivering research solutions that help clients stay ahead of what's next. For more information, please visit www.harrisinteractive.com.