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The Principal Financial Well-Being IndexSM Index Trending Summary - Third Quarter 2007

The Principal Financial Group®, the nation's 401(k) leader, commissioned Harris Interactive® to conduct online research with employees (ages 18+) of small and midsized (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. Harris Interactive conducted The Principal Financial Well-Being Index survey online among 1,214 employees and 554 retirees from Aug. 1 - 7, 2007. Data were weighted to be representative of the entire population of adult employees working for small to midsized U.S. businesses and retirees on the basis of age by gender, age, education, race/ethnicity, region, income and propensity to be online. With a probability sample of this size, one can say with 95 percent certainty that the results have a statistical precision of plus or minus 3 percentage points for employees and plus or minus 4 percentage points for retirees; however, this online sample was not a probability sample. This is one in a series of quarterly studies to identify and track changes in the workplace of small and midsized (growing) businesses. The first Principal Financial Well-Being IndexSM survey was conducted in the United States in 2000.

Key Findings

  • Housing Market – Of those employees who own their primary residence (65%), 36% do not even have 20% equity built up in their home. Not surprisingly, significantly more retirees (60%) have their homes completely paid off than employees (14%). Those employees who plan on retiring within 5 years are most likely planning on keeping their primary residence during their retirement, at least at first. Not unlike employees, the majority of retirees (73%) has kept and plans to keep their existing residence during retirement given current housing market conditions. The majority of retiree and employee homeowners (78% and 76%, respectively) have not considered taking out a reverse mortgage or selling their home to help fund their retirement.
  • Financial Well Being —A total of 67% of employees are concerned about their long-term financial future, while only about half (52%) of retirees share this concern. Specific financial concerns in retirement differ for employees and retirees. When asked to identify the one issue that keeps them awake at night, employees were most likely to choose being able to afford or pay for the basic necessities (29%), while a similar percentage of retirees chose being able to afford good medical care (20%), being able to afford or pay for the basic necessities (19%), and the rising cost of inflation reducing their purchasing power (19%). Despite their concerns, many employees (45%) and significantly more retirees (61%) have not received any financial planning assistance.
  • Election Issues and Confidence in Candidates—Of a list of possible issues, healthcare and the war in Iraq were top concerns in the upcoming election for at least 60% of employees and retirees. Employees under age 35 were more likely to be concerned about education and respondents over age 35 were more likely to be concerned about homeland security. Respondents' confidence in candidates' ability to deal effectively with the various election issues was measured. At least 40% of retirees, and slightly fewer employees, said they did not believe any of the candidates could effectively address healthcare (44% retirees, 39% employees), immigration (44% retirees, 39% employees), or social security (41% retirees, 40% employees). Males were more likely than females to doubt the candidates' ability to effectively deal with social security, immigration, healthcare and education.

Additional Employee and Retiree Comparisons

  • Financial Planning Assistance and Regrets - Of those who have received financial planning assistance, the most valuable lesson received was to diversify their portfolio, mentioned by nearly 1 out of 5 employees and retirees. The most frequently mentioned financial planning regret among both retirees (30%) and even more employees (43%) was that they started saving too late.
  • Financial Set Backs - Employees (41%) were most likely to fear a job loss as the one event that would set them back the most financially, while retirees (37%) were most likely to fear a large medical expense due to a serious illness or accident.
  • Financial Literacy - When asked where they prefer their children learn about financial matters, 1 out of 5 employees (22%) and retirees (19%) prefer they learned in the classroom because they do not consider themselves to be sufficiently literate in financial matters. Similar percentages of employees (21%) and retirees (24%) prefer they learn at home because they think they are a good example of financial responsibility. Males tend to prefer to teach at home, while females tend to prefer their children learn in the classroom.
  • Financing Education - The majority, or 84% of both employees and retirees, believe children should have partial or full responsibility for financing their college education. Only 10% of employees are planning in advance for financing their children's education.

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Employees Only

  • Benefit Availability and Enhancement - The most commonly offered benefits by small to medium sized employers include health insurance (93%), defined contribution plans (75%), dental insurance (75%), life insurance (67%), free parking (59%), and disability insurance (48%). Defined benefit plans, flex time, and profit sharing/bonus program were the benefits that employees would most like to see added to their employer offered benefit package. Health insurance (44%) and defined contribution plans (17%) top the list of benefits that employees most wish their company would improve upon.
  • Benefit Satisfaction and Importance - Employees are most satisfied (rating of 8, 9 or 10 on a 10 point scale) with their defined benefit plan (64%), defined contribution plan (55%), disability insurance (55%), and profit sharing/bonus program (54%). Satisfaction with stock options increased significantly from last year at this time. In terms of benefit importance, health insurance topped the list with nearly 9 out of 10 employees (89%) rating this as a highly important benefit. Also noteworthy is that disability insurance, life insurance, and stock options were rated as significantly more important this year than last year.
  • 401(k) Deferral - Similar to this time in 2006, there is a large gap between the amount employees are currently deferring to their 401(k) and the amount they believe they should be deferring in order to live comfortably in retirement. Sixteen percent of eligible employees are not deferring any of their salary. Thirty-one percent defer 1 - 5 % of their salary, another 31% defer 6 - 10 percent of their salary, and 11% contribute 11% or more of their salary. In contrast, 42% of the employees feel they should be deferring at least 11% of their salary to their 401(k). Those who are not participating in their employer sponsored retirement plan say the main reason is because they lack the financial resources to contribute to the plan, mentioned by 43% of the employees.
  • Charitable Donations in the Workplace - Over half (55%) of employees either currently participate (29%) or would participate (26%) in charitable giving at work. Females (36%) are more likely to participate in charitable giving at work if encouraged by their employer than males (23%). Furthermore, males (32%) are more likely to say they would not participate even if their employer encouraged it than females (21%).

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Retirees Only

  • Meeting with Financial Planners - Retirees were asked how often they meet with their financial planning during retirement, compared to before their retirement. Since retiring, 7% have obtained a financial planner and another 7% say they meet with their planner more now that they are retired. Seven percent have given up their financial planner altogether since retiring and 13% meet with their planner less often in retirement. Almost two-thirds of retirees (65%) have never had a financial planner.
  • Financial Security in Retirement - When asked how they felt about their financial security now that they are retired, about half (49%) of retirees said they feel about the same, just over a quarter (27%) of them said they feel better, and almost another quarter (24%) said they feel worse about their financial security now than they did prior to retiring.

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