A new Cogent Syndicated report from Escalent shows retirement readiness is largely a misnomer, as a whopping four in ten participants (40%) admit to calculating their retirement savings goals off the top of their head. Other popular methods include online calculators (30%), detailed plans with financial advisors (25%) and do-it-yourself customized spreadsheets (22%).
When asked for best estimates, the overall mean retirement savings goal is $946K, ranging from a low of $498K among Generation Z to a high of $1.2M among Second Wave Boomers. Individual estimates for employer-sponsored retirement plans (ESRPs), IRAs, brokerage accounts and other vehicles, are markedly higher among Second Wave Boomers versus Generation Z, underscoring the opportunity to educate younger cohorts on how much they need to save to live comfortably in retirement.
These are the latest findings of Escalent’s DC Participant Planscape™ report, which is designed to help defined contribution (DC) plan providers maximize participant contributions, enhance engagement, leverage cross-sell opportunities and attract rollover dollars.
“Despite the industry’s efforts to date, participants aren’t able to grasp how much money is required to live comfortably in retirement until they get really close to making that important transition,” said Sonia Davis, senior product director at Escalent and lead author of the report. “We consistently hear retirees advocating that firms encourage younger employees to contribute and instill how much is needed to have a comfortable lifestyle in retirement. Firms can take action by enhancing financial wellness counseling and providing fresh and engaging content around retirement readiness.”
The research also reveals that only one in four participants is “extremely” confident in obtaining their stated retirement savings goals (26% vs. 36% in 2021 and 33% in 2022), stemming from declines among Millennials and Generation X. Moreover, just one in ten Gen Xers (10%) is extremely confident in their future ability to convert savings into real-life income in contrast to roughly half of First and Second Wave Boomers.
“Many participants doubt their future ability to convert their retirement savings into real-life income, revealing an untapped market for retirement income solutions,” said Linda York, senior vice president in the Cogent Syndicated division at Escalent. “It can be challenging for providers to explain complex products and keep participants’ objectives front and center. Product providers, insurers and plan providers need to reframe the conversation to focus less on the nuanced details of income tools and more on how participants will benefit from using recommended tools and strategies.”
There is no one-size-fits-all solution for plan providers with respect to retirement planning, education and product development. “Providers must be mindful of the unique needs of each generational cohort to bridge the gap in retirement readiness and when introducing new retirement solutions to the market,” adds Davis.
Cogent Syndicated, a division of Escalent, conducted an online survey of a representative cross-section of 4,016 DC plan participants from May 24 to June 9, 2023. Survey participants were required to be 18 years or older and contribute at least 1% to a current plan and/or have $5,000 or more in at least one former plan. Targets were set to investor gender, region, age, education and household income using US census data filtered by the screening criteria (a market-sizing flyover survey was used to filter the US census data). The data have a margin of error of ±1.55% at the 95% confidence level. Escalent will supply the exact wording of any survey question upon request.
To learn more about the full report, click below.