Retirement savers face key barriers

By Albert B. Crenshaw
The Washington Post

If the 401(k) retirement-savings system ever wants a mascot and a slogan, it need look no further than Mad magazine's Alfred E. Neuman and his signature line, "What, me worry?"

Millions of Americans now are depending on their 401(k) accounts, along with Social Security, to see them through their golden years. And, according to a new survey by benefits consultant Hewitt Associates, nearly three-quarters — 72 percent — expect to have the same standard of living in retirement that they have had while working.

At the same time, more than half — 52 percent — admit they haven't done as well as they should have in managing their k-plan accounts, but they seem to expect things to work out okay just the same.

"The most notable finding" in the survey, which covered 3,500 employees of large companies, "was the disconnect between what people are feeling today and what they expect the future to look like," said Lori Lucas, an expert with Hewitt on the behavior of retirement plan participants.

The study found that a basic lack of money, as well as a lack of financial expertise and/or advice, were the key barriers to better participation by workers, and Hewitt is suggesting that employers revamp offerings to make their 401(k) plans more affordable and less intimidating to employees. Providing options that automatically make recommended investment changes — such as boosting contributions over time and rebalancing holdings — could help ease workers' problems, Hewitt's experts think.

As of today, though, the study found that 49 percent of workers don't think they are saving enough, and 18 percent don't know whether they are or not. On average these workers were contributing 5 percent to 6 percent of pay to their plans.

About 27 percent of workers said they felt they were saving about the right amount. This group, on average, was contributing about 8 percent.

However, Hewitt noted, most economists say that, as a rule of thumb, workers should save 10 percent to 15 percent of pay to have an adequate retirement nest egg.

Now it's possible, of course, that these workers are saving other money outside their 401(k) plan. There are those who argue that after a worker has maxed out any employer match, saving in a taxable account may be preferable.

For example, if a worker invests in stocks, gains go untaxed until the shares are sold and then are taxed at lower capital-gains rates. And capital losses are deductible against gains, and within certain limits against other income. Withdrawals from 401(k) and individual retirement accounts in retirement are taxed at ordinary income rates and losses aren't deductible.

But it doesn't seem likely that many rank-and-file employees are worrying about these niceties. In fact, study after study shows that workers aren't saving enough, and fewer and fewer have traditional "defined benefit" pensions that promise a lifetime stream of income from an employer fund that is backed up by the federal government.

Advocates of 401(k) plans claimed they would increase retirement coverage, but as Sen. Edward M. Kennedy, D-Mass., recently noted, less than half of American workers have any kind of retirement plan — and that has changed little over the past 20 years.

So why aren't employees saving more?

In the Hewitt survey, just over half said "other financial obligations" were the No. 1 reason. In other words, they don't feel they have the money.