It's Never Too Late to Save

The Great Recession may have prompted more Americans to begin tucking away a bigger portion of their paychecks. According to the fourth quarter 2010 summary of The Principal Financial Well-Being Index, employees have taken steps to improve or rebuild their financial well-being since the recession began: 57 percent have spent less money, half have paid down debt, 24 percent have increased savings for an emergency fund, and nearly one in five (18 percent) said they increased their retirement savings contributions within the past six months.

And yet, many still aren’t saving enough for retirement. Results of an ING Retirement Research Institute survey released in November 2010 indicate that while employer-sponsored retirement plans are of great importance to those participating in them, most aren’t maximizing the full savings power of these plans. The national survey included 1,000 workers, ranging in age from their 20s to their 50s and currently participating in an employer-sponsored retirement plan such as a 401(k), 403(b), or 457 plan.

Among the key findings from the research:

• Plan investors often did not recognize the lifetime value of even a small 2 percent increase in their contribution rate and how this could help them reach their retirement goals. Of those participants not contributing the maximum to their employer-sponsored retirement plan, an overwhelming majority (87 percent) admitted they could afford to increase their annual contribution by 1 percent of their annual salary. Almost 6 in 10 (59 percent) said they could increase their contribution by 3 percent of their salary, while nearly one-third (32 percent) could afford a 5 percent increase.
• Most participants (58 percent) acknowledged that their workplace retirement plan was their first investment, and nearly two-thirds (64 percent) said their employer-sponsored retirement plan accounts for all or most of their retirement portfolio. A significant number (45 percent) said if they didn’t have a retirement plan at work, they probably wouldn’t be saving for retirement. And more than half (53 percent) said that if their employer provided them with more education, they might increase contributions to their plan.

The American Savings Education Council is trying to boost that employer behavior. ASEC is encouraging educators, financial institutions, and nonprofit and government groups to help spread the message about the need to save. Its annual America Saves Week kicks off February 20. The long-term goal of the week is persuade millions of individuals to take action to become fiscally fit by paying off high-cost debt, ensuring adequate emergency savings, building long-term wealth, and saving for retirement. Tools, tips, and resources remain available year-round.

Among other groups seeking to enhance the financial acumen of American employees is the Financial Literacy Research Consortium, an initiative of the Social Security Administration. The consortium is a partnership among research centers at Boston College, the RAND Corporation, and the University of Wisconsin to develop innovative, research-based materials and programs targeted to Americans at different stages of their working lives to help them plan and save for a secure retirement. A special emphasis is being placed on helping traditionally underserved populations better understand the path toward a secure retirement. Projects and resources in development include:

• An interactive Web-based retirement planning guide for pre-retirees, letting users experiment with different employment and savings scenarios to see the effect on retirement income targets.
• Narratives and videos on key savings principles for younger workers.
• Evidence-based analysis of factors impacting financial literacy throughout the aging cycle, particularly within the context of life changes, health problems, financial distress, and cognitive declines.
• Interactive programs for retirees highlighting behavioral baggage that impedes good retirement planning.
• Assessment of savings deficiencies and negative financial shocks for low-income and special populations.

Karla Hignite, principal of KH Communication, is editor of NACUBO's HR Horizons. E-mail: karlahignite@msn.com.