If there is a silver lining to the financial crisis, it may be that Americans are finally waking up to the notion that they need to save more for retirement.
A new survey of employer-provided retirement plan participants found that 75% of respondents say they would be willing to be automatically enrolled into a six-month trial program that would direct 10% of their gross salary to retirement savings. That's a far cry from the initial 3% deferral rate typical of most automatic enrollment plans or the 6% cap that many plan providers impose on auto-escalation features.
Automatic 401(k) features have been hailed as one of the most successful changes in retirement plans in recent years. But they have also been criticized for setting the default on appropriate savings levels too low. Most industry experts agree that workers should aim to save 15% of the gross salary--including any employer contributions--from the beginning of their careers and those who get a late start on savings should save even more. In reality, few do. Now it looks like some savers are willing to bite the bullet--and they are begging their employers to help them do it.
“Plan participants communicated loud and clear about what they need: simple steps and automated features,” said Kristi Mitchem, senior managing director and head of Global Defined Contribution for State Street Global Advisors.The survey, conducted jointly by SSGA and the Boston Research Group, included more than 1,000 participants in 401(k), 403(b), profit sharing and stock purchase plans
There are generational differences in how workers have responded to the financial crisis. Seventy-three percent of the youngest workers, ages 18-24, said the recent volatility prompted them to save more, versus 37 percent of the general population. Younger savers are more conservative and more likely to save than their older counterparts. “The market volatility has created a new generation of savers,” Mitchem said. “Younger workers are saving more and spending less than their parents, while 66 percent of those over 50 years of age admit to not saving at an early enough age.”
The Baby Boomers certainly may be in for a rough ride on their road to retirement, saving too little too late. But perhaps there's hope for their kids, who will know right from the beginning that saving for retirement is critical and something they must do for themselves. With enough help from their employers from the outset, they have a good chance of getting it right. Let's hope they do, because in another decade or two, we may be reading about the new trend of "boomerang parents" coming home to live with their kids.
