Retirement Preparedness Plunges in Older Workers

After the Great Recession devastated retirement portfolios, it’s not surprising that younger participants are more likely to be on track to reach their retirement goals.

According to a survey by John Hancock of participants on its open architecture platform, more than 60 percent of participants under age 30, and two-thirds of 30-somethings, are on track to replace at least 70 percent of their earnings by retirement age. However, that preparedness declines steadily with age, the survey found.

The paper, “State of the participant 2020: Readiness within reach,” is based on data from 1.2 million participants. Total assets were nearly $77.5 billion in 1,123 plans.

Over half of 40-somethings are on track to meet retirement goals, according to John Hancock. Preparedness plunges to just 34 percent of 50-somethings, and just one in five people over age 60 are on track to meet their goals by retirement age.

How did they get there? John Hancock found that younger participants are more likely than older participants to be investing in their target equity range, with allocations that are neither too conservative nor too aggressive. Those 50 and older are more likely to be investing too conservatively, with sizable percentages allocated too aggressively.

Although the youngest participants are more likely than their older peers to be in target equity ranges, they’re also much more likely to have portfolios that are too conservative. Twenty-eight percent of investors in the under-30 and 30–39 age groups are allocated appropriately, but a respective 72 percent and 65 percent are too conservative.

“Taken all together, these numbers indicate that all populations could use some help maintaining the right balance, whether it’s through education, direct advice, or an introduction to managed accounts or target-date fund (TDF) investing,” according to John Hancock.

Participants might need some more education around TDFs. All TDF investors in the survey have at least some of their portfolio in non-TDF funds, “corrupting their overall mix,” according to John Hancock. The youngest participants were the most likely to be all-in on TDFs, followed by the 30–39 crowd and investors over 60.

Other key findings:

• Automatic features work. The report states that automatically enrolling people at a 6 percent default rate, and automatically increasing their contributions by 1 percent per year, increases by 36 percent the proportion of participants who are adequately prepared.
• Meanwhile, even the highest default contribution rates have few participants opting out. At an 8 percent default, fewer than 8 percent of participants opted out; the biggest opt-out happened at 2 percent, when 15 percent of employees declined to enroll.
• Stable-value funds are, unsurprisingly, favored by older investors. Almost a quarter of participants in the older age groups are invested in stable-value funds. Utilization drops off dramatically: from 18 percent for people over 40, to 11 percent of 30- to 39-year-olds, to 5 percent of the youngest participants.

From: BenefitsPro