Americans saving for retirement through workplace savings plans like a 401(k) have access to an effective and resilient investment system. In 2006, the Pension Protection Act (PPA) expanded the potential for retirement plan sponsors to help workers pursue successful retirement outcomes by introducing features like auto-enrollment and auto-escalation. And recent collaborative research by leaders in the asset management, retirement, and insurance industries shows that workplace savings plans, in place for most savers since the mid-1980s, are not only working, they are also a strong source of financial security for Americans in their golden years.
The expanding role of plan sponsors With maturity comes change, and, as stated by Aon Hewitt in its recent "Hot Topics in Retirement" report, the "age of retirement accountability" has arrived.
"As most individuals now use their employers' de?ned contribution plan as their primary retirement vehicle, there is more personal responsibility to save for adequate retirement income. While plan sponsors typically provide incentives such as matching contributions to encourage employees to participate in their plans, savings rates remain low at an average before-tax saving rate of 7.2%. Equally troubling, employers' con?dence in their capability to effectively manage their employees' ability to retire with sufficient assets is at an all-time low. Consequently, many plan sponsors are enhancing and re?ning their focus to better meet the retirement goals of both employers and employees."
Aon Hewitt, "Hot Topics in Retirement," 2013The report found that 80% of the more than 425 employers surveyed are very likely or somewhat likely to concentrate on the financial well-being of employees this year.
A difficult goal But financial wellness is not easily achieved. An Employee Benefit Research Institute survey found 41% of workers cited managing day-to-day expenses as the main reason they don't contribute more to their retirement plans.
Debt is a nagging problem At the same time, workers continue to struggle with basic finances. In a 2013 PricewaterhouseCoopers study, 22% of workers said they use credit cards to pay for monthly necessities because they could not afford them otherwise. Workers in their prime earnings years, like Gen X, found it challenging to meet expenses, with 36% saying it's likely they will need to use their retirement savings to pay for expenses other than retirement.
Enabling a holistic approach In an effort to help retirement plan participants view saving more broadly, Putnam has launched tools and resources focused on generating income in retirement. And this year we began offering financial wellness services provided by LearnVest to help participants view the bigger financial picture and receive assistance with financial activities such as budgeting, expense tracking, and debt management.
The value of advice Of course, investment advice from a financial professional is invaluable in financial planning. Our Lifetime Income Score research found that when saving for retirement, getting professional advice can make a real difference. There is nothing wrong with 401(k)s and employer-sponsored savings plans that can't be fixed by taking better advantage of the current system. The features of the PPA, coupled with active engagement by both plan sponsors and plan participants in a holistic approach, could result in better retirement outcomes for American workers.
Putnam Investments and its related entities are not affiliated with LearnVest.
The Putnam Lifetime Income Survey, with research methodology provided by the Putnam Institute, was conducted online by Brightwork Partners and completed in January 2013. The survey of 4,089 working adults age 18 to 65 was weighted to U.S. Census parameters for all working adults.