1 Findings from the Retirement Confidence Survey: Implications for Retirement Planning How to Increase the Effectiveness of Financial Education: Lessons

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Findings from the Retirement Confidence Survey: Implications for

Retirement Planning

How to Increase the Effectiveness of Financial Education: Lessons from Economics and Psychology

Dartmouth College

October 17, 2005

Craig Copeland, Employee Benefit Research Institute

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73%78%

69% 72% 71% 68% 69%

57% 58% 60%66%

59%68% 74%

65% 67% 68%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Respondent Respondent and/or spouse

7 in 10 Workers Say They Have Saved for Retirement

Not including Social Security taxes or employer-provided money, have you (and/or your spouse) personally saved any money for retirement? These savings could include money you personally put into a retirement plan at work. (2005 Workers n=1,001)

Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1994-2005 Retirement Confidence Surveys

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Americans are More Likely to Save for Retirement Than for Any Other Goal

27%

16%

7%

8%

11%

8%

4%

9%

3%

11%

7%

20%

66%

69%

Workers

Retirees

Other than retirement, for what are you (and your spouse) saving? (Workers n=501; Retirees n=252) (Top mentions, multiple responses accepted)

Children's/grandchildren's education

Money for an emergency

General well being

Retirement

Home purchase or renovation

A vacation

Nothing

Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

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52%

43%

13%

20%

11%

7%

12% 11% 11%

19%

Workers Retirees

In total, about how much money would you say you currently have in savings and investments, not including the value of your primary residence? Please include savings, certificates of deposit, stocks, bonds, mutual funds, workplace retirement plans, and other investments (Workers responding n=818; Retirees responding n=190)

Most Have Little in Savings

Less than$25,000

$25,000-$49,999

$50,000-$99,999

$100,000-$249,999

$250,000or more


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Retirement Needs Calculation

The first step towards planning for retirement

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Only 2 in 5 Workers Have Attempted to do a Retirement Savings Needs Calculation

48%53%

44%

38%

43% 42% 42%

31% 32% 29% 33%42% 45%

51%

39%32%

37%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Respondent Respondent and/or spouse

Have you (and/or your spouse) tried to figure out how much money you will need to have saved by the time you retire so that you can live comfortably in retirement? (2005 Workers n=1,001)


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3%

1%

4%

0%

7%

5%

7%

76%

2%

1%

1%

11%

10%

6%

35%

37%

10%

3%

1%

2%

5%

5%

7%

18%

21%

<.5%

46%

Total (n=929)Did calculation (n=468)Did not do calculation (n=455)

Consequently Almost Half of Workers Guess the Amount They Need to Save for Retirement

How did you (or your spouse) determine this amount? (Workers attempting calculation and/or reporting amount needed for retirement, n=929) (multiple responses accepted)

Guess

Ask a financial advisor

Cost of living/lifestyle/current spending

Other

Do your own estimate

Spouse calculated

Read or hear that is how much is needed

Fill out a worksheet or form

Use an on-line calculator


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16%

7%

10% 10%12%

3%

32%

11%

$1,000,000to

$1,499,999

$250,000to

$499,999

$1,500,000or more

Under$250,000

Don’tknow/Don’t

remember

$500,000to

$999,999

RefusedCouldnot do

calculation

How much did you (and/or your spouse) calculate you would need to save in total by the time you retire? (Among workers trying to do a retirement needs calculation, n=332)

One-third who have done a calculation can’t remember the result.

Source: EBRI/ASEC/Greenwald, 2004 Retirement Confidence Survey

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32%23%

38%

21%21% 22%

18%

21%

16%

8%

11%

6% 7%

11%

5%

<0.5%<0.5%

<0.5%

10% 8% 11%

2%4%

<0.5%

Total (n=1,001)Did calculation (n=469)Did not do calculation (n=524)

$1,000,000to

$1,499,999

$250,000to

$499,999

$1,500,000or more

Under$250,000

Don’tknow/Don’t

remember

$500,000to

$999,999

RefusedCouldnot do

calculation

How much did you (or your spouse) calculate you would need to accumulate in total by the time you retire?/How much do you think you (and your spouse) will need to accumulate by the time you retire so that you can live comfortably in retirement? (Workers n=1,001)

Workers Calculating the Amount Needed for Retirement Report Higher Accumulation Needs


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28%

39%

19%

38%41%

37%

19%

12%

24%

15%

9%

20%

Total (n=871)Did calculation (n=410)Did not do calculation (n=455)

Veryconfident

Not at all confident

Somewhatconfident

Not tooconfident

Those Calculating a Specific Goal are Also More Confident They Will be Able to Save That Amount

How confident are you that you (and your spouse) will be able to accumulate this amount by the time you retire? (Workers reporting amount needed for retirement, n=871)


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Do calculations or educational materials matter for planning?

Does behavior change?

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19%

5%

5%

13%

52%

10%

11%

Working Through a Savings Calculation Can Affect Savings Behavior

No55%

Don't know

1%

Yes44%

Did you (and/or your spouse) make any changes in your retirement planning as a result of trying to figure out the amount you will need to have saved by the time you retire? If yes, what changes did you (and/or your spouse) make? (Workers trying to do a retirement needs calculation, n=469)

(n=218)

(multiple responses accepted)

Started saving more

Changed allocationof money

Researched other savings

methods

Other

Reduced debt

Started saving less

Enrolled in 401(k)/opened another

account


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10%

1%

4%

7%

31%

Educational Material From an Employer May Lead to a Change in Savings Behavior or Allocation Strategy

No79%

Don't know

1%

Yes20%

Did you (and your spouse) make any changes in your retirement planning as a result of the material you received from your employer? If yes, what changes did you make? (Workers receiving educational material, information, or seminars, n=446)

(n=93)

(multiple responses accepted)

Started saving more

Changed allocationof money

Researched other savings methods

Other

Enrolled in a 401(k)/ opened another

account

Started saving forthe first time

42%


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When Offered, Almost Half Request Investment Advice; 3 in 4 Implement at Least Some Recommendations

Don't know

1%

Yes46%

No52%

Did you request and receive specific recommendations on how you should invest your money? If yes, did you implement all, some, or none of the recommendations you received? (Workers provided with investment advice by employer, n=248)

(n=114)

Requested and Received Implementation

Some of the

recommendations

59%

None of the recommendations

24%

Don’t know 1%

All of the recommendations

16%


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What do people use to plan for retirement?

What is the most helpful?

16

87%

74%

63%

54%57%

36%

55%

41%

54%

39% 36%

10%

27%

13%19%

28%

18%

8%11%11%

Workers Retirees

Input from your spouse

Advice of family, friends, or co-

workers

Advice of a financial

professional

Written material

received at work

Newspapers, magazines,

or other written material

Online professional investment

advice services

Information available over

the Internet

Information from

television or radio

Computer software

Information from seminars

When you (or your spouse) (are/were) making your retirement savings and investment decisions, (do/did) you use…? (Workers saved for retirement, n=365; Retirees saved for retirement, n=184)

Some Often-used Sources of Financial Advice May Provide Little Real Help


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Workers Say They are Most Likely to Use Investment Advice If Provided in Person

8% 20% 26% 44%

16% 29% 18% 35%

25% 39% 12% 22%

By telephone

On-line

In person

Very likely Somewhat likely Not too likely Not at all likely

If an employer offered you access to this type of professional investment advice, how likely do you think you would be to take advantage of it if the advice was available . . . ? (Workers without employer-provided investment advice, n=753)


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8% 20%

16% 29%

25% 39%

By telephone

On-line

In person

Very likely Somewhat likely

If an employer offered you access to this type of professional investment advice, how likely do you think you would be to take advantage of it if the advice was available . . . ? (Workers without employer-provided investment advice, n=753)

2 in 3 Workers Not Offered Advice Say They Would Be Likely to Use It If Offered in Person


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Savers Most Often Find the Advice of a Financial Professional Helpful

Which (is/was) most helpful to you? (Workers saved for retirement, n=356)

17%

11%

11%

7%

2%

1%

0.5%

3%

9%

38%The advice of a financial professional

The advice of family, friends, or co-workers

Newspapers, magazines, or other written material

Input from your spouse

Written material received at work

Information available over the Internet

Information from television or radio

Information from seminars

Online professional investment advice

None/Don't know

Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey.

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8%

<.5%

1%

2%

5%

6%

6%

7%

20%

20%

23%Individual access to a financial planner

Newsletters/magazines

Online investment advice services

Brochures

Workbooks/worksheets

Retirement benefit statements

Seminars or group meetings

Software programs

Videos or CD-ROMs

None

Other online services

Which was the most helpful to you? (Among workers given educational material or seminars through employer, n=269)

In-person formats where workers can ask questions, or personalized materials are seen as most helpful.

Source: EBRI/ASEC/Greenwald, 2004 Retirement Confidence Survey

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Do people think they are on track?

Why not?

Do they think they will make it?

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3%2% 2%

3% 4% 3% 3% 4%

40%

34%33%

37%

25%25%26%

23%

27%

33% 34%32%

2000 2001 2002 2005

More Than Half of Workers Feel They Are Behind Schedule

When it comes to planning and saving for retirement, would you say you are on track, ahead of schedule, or behind schedule? (Workers n=1,001)

A lot aheadof schedule

On track A little behindschedule

A little aheadof schedule

A lot behindschedule

Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2000-2002, 2005 Retirement Confidence Surveys

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Many Recognize Role of Expenses, Fewer Acknowledge Other Factors Keeping Them Behind Schedule

How big a role has each of the following played in keeping you behind schedule in planning and saving for retirement? (Workers behind schedule, n=521)

17% 23% 60%

28% 44% 28%

29% 43% 27%

31% 18% 50%

33% 30% 37%

51% 31% 17%

Poor Investing

Lack of financial discipline

Wanting a comfortable lifestyle

Job loss or frequent job changes

Career choice

High expenses

Major role Minor role no role

Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey.

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20%

6%

39%

24%

40%

69%

A major problem A minor problem Not a problem

Workers Retirees

Thinking about your current financial situation, how would your describe your level of debt? (Workers n=1,001; Retirees n=252)

6 in 10 Workers Consider Their Level of Debt To Be a Problem


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2/3rds of Workers Are At Least Somewhat Confident of Having Enough Money for a Comfortable Retirement

18%

55%

19%

6%

20%

45%

17%

17%

21%

51%

19%

8%

19%

41%

23%

16%

24%

41%

19%

15%

22%

45%

18%

13%

22%

47%

21%

9%

25%

47%

18%

10%

22%

41%

18%

17%

23%

47%

19%

10%

21%

45%

17%

16%

24%

44%

18%

13%

25%

40%

17%

17%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Overall, how confident are you that you (and your spouse) will have enough money to live comfortably throughout your retirement years? (2005 Workers n=1,001)

Very Not at allSomewhat Not too Don’t know/Refused


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20%17%

66%71%

13%10%

Workers Retirees

Thinking realistically, what kind of financial lifestyle do you think you (and your spouse) willhave in retirement? (Workers n=500) How would you describe your current financial lifestyle? (Retirees n=252)

4 in 5 Workers Think They Will Have at Least an Adequate Standard of Living in Retirement

Adequate Well offStruggling


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N/A6%

18%14%

41%

17%

23%

8%3%

2%4%

38%

6%

14%

5%2%

Workers Retirees

About what percentage of your pre-retirement household income do you think you (and your spouse) will need to live comfortably in retirement? By pre-retirement income, I mean your household income right before you retire. (Workers n=500)About what percentage of your pre-retirement income is your current household income? (Retirees n=252)

3 in 5 Workers Expect to Live Comfortably on 70% or Less of Their Pre-retirement Income; Most Retirees Have More

Less than 50%

About95-105%

105%or more

Don’t know/Refused

About50-70%

About70-85%

About85-95%

Lower (Don’t

know %)


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Extra Slides for Discussion

Other Elements for Financial Planning

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11%

21%20%

11% 12%

10%

3%4%

8%

How much income do you think you will be able to get from this nest egg each year in retirement without running out of money? (Workers reporting amount needed for retirement, n=871)

Some Workers May Overestimate How Much Income Their Nest Egg Will Generate

$35,000to

$49,999

$15,000to

$24,999

$50,000 to

$74,999

Less than $5,000 each

year

$100,000 or more

$25,000to

$34,999

Don’t know

$75,000 to

$99,999

$5,000to

$14,999


30

6% 6%

11%

5%

11%

4%

27%

15%

9%8%

17% 19%

NA

4%

19%

38%Workers Retirees

For how many years do you expect to be retired (Workers planning to retire, n=939)At the time that you retired, how many years did you expect your retirement to last? (Retirees n=252)

Half of Workers Expect to be Retired for 20 years or More

10 to 14 years

20 to 24 years

Don’t know/

Refused

15 to 19 years

25 to 29 years

30 years or more

Less than 10 years

Did not expect to

retire


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19%

5%

1%

3%

3%

3%

4%

8%

22%

32%

Many Retirees Feel They Don’t Need or Can’t Afford an Annuity

Why have you not purchased or looked into purchasing a financial product that pays a guaranteed income for life? (Retirees not taking any action toward a financial product that pays a guaranteed income for life, n=127) (multiple responses accepted)

Don’t need it

Don’t believe in product/ Suspicious of product

Other

Can’t afford it/Too expensive

Don’t know/Refused

Just haven’t done it/Didn’t think of it

Already have pension/annuity

Aren’t aware of product

Don’t know where to go for information

Not interested in product/Have other products


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Very Few Workers Participate in Automatic Savings Arrangements Outside of Work, but Most Know of Them

Are you currently saving for retirement outside of work using an automatic arrangement like this? (Workers n=1,001) Before today, were you aware that you could save automatically for retirement in this way? (Workers not using an automatic savings plan, n=822)

No 85%

Yes 15%

Don’t know 1%

Yes 68%

No 31%

Currently Saving Outside of WorkUsing Automatic Savings Plan

Aware Could Save AutomaticallyOutside of Work

(n=822)


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16% 4% 78%

19% 77%

19% 76%

38% 4% 56%

Offered, use Offered, don't use Not offered

An option that automatically raises your contribution by a certain

percentage or amount whenever you receive a pay raise

An option where a professional financial manager makes investment

decisions for you based on your responses to a questionnaire

A fund option that is designed for people of your age and income level

and automatically becomes more conservative as your retirement date

nears

A fund option that maintains a pre-set level of risk and generally has a mix of conservative, moderate and

aggressive investments

If this were part of your workplace savings plan, would you be very likely, somewhat, not too, or not at all likely to use it, or does your plan already have this feature? Do you participate in it? (Workers participating in a workplace savings plan, n=461)

A Large Minority of Participants Have Lifestyle Funds Available as Part of Their Plans—and Use Them


Documents

1 Findings from the Retirement Confidence Survey: Implications for Retirement Planning How to Increase the Effectiveness of Financial Education: Lessons