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The Principal Financial Well-Being IndexSM Executive Summary - Second Quarter 2006

The Principal Financial Group®, the nation’s 401(k) leader, 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. Harris Interactive conducted The Principal Financial Well-Being Index survey of 1100 employees and 638 retirees from May 1, through May 5, 2006 using the Harris Poll Online. 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% certainty that the results have a statistical precision of ± 3 percentage points for employees and± 4 percentage points for retirees; however, this 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 mid-sized (growing) businesses. The first Principal Financial Well-Being IndexSM survey was conducted in the United States in 2000.

Key Findings

Employee and Retiree Comparisons

  • Financial Analysis of Coverage - Almost three out of four (73%) retirees and employees responded they have not had a financial analysis of any of several financial planning areas listed within the past three years. The most often mentioned item having been reviewed within the past three years was retirement savings. Approximately one in five retirees and employees listed retirement savings as an item that has been reviewed for adequacy within the past three years.
  • Retirement Age - Employees were asked at what age do you expect to retire, and retirees were asked at what age they did retire. Fifteen percent of the employees responded that they don’t plan to ever retire. Half of the retirees responded that they retired at age 60 or younger. Only 27% of the employees think they will retiree at age 60 or younger.
  • Years in Retirement - Retirees plan to spend significantly more years in retirement (26.2 average) than employees (21.1 average).
  • State of Retirement - Retirees and employees were asked a series of questions about things related to retirement. Not surprisingly, retirees were significantly more confident than the employee group. One question asked about confidence in having enough money to take care of basic expenses during retirement. Three out of four (76%) retirees were confident or somewhat confident, with approximately one-fourth of retirees still not sure they will have enough money to take care of basic expenses.
  • Financial Hardship - Employees and retirees were asked what they would do if they were retired and realized they didn’t have enough savings to pay for basic necessities. The most frequently given response by either group was to go back to work. 90% of the employees said they would go back to work but only 47% of the retirees responded they would go back to work.
  • Net Income Allocation - employees and retirees feel the majority of their take home pay is going to essential expenses, followed by discretionary expenses and then, savings. Male retirees indicate a significantly higher percentage of their take home pay (23.6%) goes to discretionary expenses than female retirees who report 16.2% goes to discretionary expenses. Female retirees indicate a higher percentage of take home pay goes to essential expenses (68.4%) than male retirees (59.6%).
  • Rising Fuel Costs - Employees and retirees were asked if the rising cost of fuel had influenced various activities in their lives. There are significant differences in how it is impacting retirees and employees. Significantly more employees than retirees say it has impacted holiday vacation plans, automobile purchasing decisions, the grade of fuel used and the decision to carpool or use alternate means of transportation. One third of the retirees responded that it has made no impact.
  • Check-Ups - Employees and retirees were given a list of items that people have periodic check-ups. Almost half (47%) of the employees and 44% of the retirees say they have never had a financial planning check-up. On the other hand, over half of the employees (54%) and 39% of the retirees have their car checked four times per year or more.

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Employees Only

  • Retirement Planning - Employees were asked if they feel they are on track in planning and saving for retirement. Almost seven out of ten (68%) feel they are a little or a lot behind schedule.
  • Automatic Enrollment - Employees were asked about automatic enrollment with a standard deferral rate. The results were significantly different than in 2002 when this same question was last asked. A significantly higher percentage of employees (59%) agree with automatic enrollment compared to 2002 when only 35% agreed.
  • Benefit Satisfaction - Employees reported high levels of satisfaction with their benefits. Defined benefit plans, profit sharing/bonus plans, defined contribution plans and disability insurance were all at a five year high for satisfaction.
  • Benefit Importance - Consistently, for the past five years, the largest percentage of employees have rated health insurance and defined contribution plans as an 8,9 or 10 on a 10 point scale with 10 being “Very Important”.

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Retirees Only

  • Retirees were asked how their health insurance is covered. Almost half (47%) responded it is covered with Medicare and a Medicare supplemental plan. One fourth of retirees are still covered by their former employer.

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