By Cyril Tuohy
Employees who set aside retirement funds through their 401(k) are not planning to increase their contributions in 2014 compared to this year, a sign that many workers are not benefitting financially from an improving economy, Mercer said.
The Mercer Workplace Survey of 1,506 participants also found that those closest to retirement are decreasing their planned savings as they enter a period of uncertainty with regard to health care costs. This is occurring as health reform takes hold.
Workers over the age of 50 expect to cut their savings amount by as much as 18 percent in 2014 compared to this year, the survey found.
The average percentage of pretax salary deferral in 401(k) plans ranges from 5.2 percent to 6.6 percent depending on a workers’ salary, according to the 56th Annual Survey of profit sharing and 401(k) plans by Plan Sponsor Council of America.
Dave Tolve, defined contribution business leader for Mercer’s administration business, said the results indicate that workers are entering a period in which they prefer immediate access to cash than saving for the future.
“Savings rates obviously tie to, and build participants’ expectations for retirement – and right now, those expectations aren’t great. Participants are worried about paying their future bills and are planning to work longer,” Tolve said in a news release.
Saving to pay for health care in retirement has emerged as a big issue for many workers. Since 2007 savings for healthcare in retirement has doubled as a major savings goal, even as only 35 percent of workers believe they’ll have enough money to pay for it.
Amy Reynolds, U.S. defined contribution consulting leader for Mercer’s retirement business, said that employers could play an even larger role than they are today in helping workers prepare. Automatic enrollment features are not likely to be enough to help workers prepare for future expenses.
“Sponsors should be frequently assessing the impact of their participants’ behavior on their ultimate ability to retire and intercede with program changes before workforce management issues arise,” she said in a statement.
Separate surveys have found that many employees expect to work beyond the legal retirement age simply because they can’t afford to retire, or because they need the health benefits. A Wells Fargo survey released earlier this year found that 37 percent of those polled said they expected to work till they die.
The findings have led some commentators to proclaim that “age 60 is the new age 80.”
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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