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Preparation for Retirement: The Haves and Have-Nots

Individuals have become increasingly responsible for ensuring their financial security in retirement. This growing trend may be attributed to changes in employer-sponsored retirement plans from the “traditional pension” (defined benefit) plan to the increasingly popular defined contribution plan (e.g., 401k, 403b, etc.). However, while some workers have the opportunity to save through employer-sponsored retirement plans, others do not.

AARP conducted a survey to gage the level of retirement preparedness of those households that participate in an employer-sponsored defined contribution plan versus those that do not have access to a plan. This survey, which compares the “Haves” (working households that participate in a 401(k) or 403(b) plan) with the “Have-Nots” (working households that lack access to a retirement savings plan at work) finds that:

  • The majority of financial decision-makers in working households that lack access to a 401(k) or 403(b) plan would participate in one if it were available. Over six in ten financial decision-makers in working households that lack access to a retirement savings plan at work would be very (43%) or somewhat (23%) likely to participate in a retirement savings plan like a 401(k) if their employer or their spouse's employer were to offer one.
  • Working households are not well-prepared for retirement. Among working households, 30% have not saved anything for retirement while 22% have saved up to $25,000. In addition, 61% of financial decision-makers in working households either do not know the percent of their pre-retirement income they will need to maintain their standard of living in retirement or estimate it being less than 70%.
  • Despite being ill-prepared for retirement, many financial decision-makers in working households have a false sense of security about their financial future. At least half are very or somewhat confident that they will be able to cover their basic expenses in retirement, have enough money to live comfortably throughout retirement, have enough money to cover medical expenses, and be able to afford to retire when desired.
  • Working households that lack access to a retirement savings plan at work are less prepared for retirement than working households that participate in a 401(k) or 403(b) plan. Working households that lack access are less likely to have given their retirement at least some thought (72% vs. 82%), saved for retirement (51% vs. 86%), tried to calculate the amount of money they will need in retirement, (38% vs. 49%), gotten help from a financial advisor or used a worksheet or online tool to determine how much money they will need in retirement (13% vs. 33% and 7% vs. 18% respectively), and made changes in retirement planning as a result of calculating the amount of money they will need (32% vs. 53%).
  • On the positive side, 44% of the working households that attempted to calculate the amount of money they would need to maintain their standard of living in retirement changed their behavior as a result of doing so.

The 1,001 survey respondents ages 21 to 70 were employed or had a spouse who was employed in the private sector, and neither they nor their spouse ever participated in a defined benefit plan. The survey was conducted for AARP by Harris Interactive and was fielded from November 2006 through March 2007. All media inquiries about this study should be directed to Jim Dau or Alejandra Owens at 202-434-2560. For all other inquiries, please contact the report's author, Colette Thayer, at 202-434-6294. (26 pages)

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