Market, Longevity Risk Continue Top Concerns

More than a year into the recovery from the worldwide pandemic, market risk is still the top concern for American workers, according to new research by $240 billion* global investment manager American Century Investments.

The ninth annual study, comprised of responses from 1,500 full-time workers between the ages of 25-65, saving through their employer’s retirement plan and grouped by the categories of Baby Boomers, Generation X and Millennials, examined their expectations, worries and regrets about retirement savings and the impact of the pandemic, according to American Century Senior Retirement Strategist Glenn Dial.

“Market risk and longevity risk continue to be the top concerns for retirement plan participants.” Dial said. “This may explain why, when it comes to taking withdrawals, 76 percent would be more likely to leave their money in their 401(k) plan if given an in-plan withdrawal solution.”

Some two out of three workers say they know how much to withdraw for living expenses, yet only six out of 10 know how long to make their money last in retirement. Also, seven out of 10 state they need a “little bit of guidance” on how to withdraw money from their retirement accounts.

“The good news is three out of every four workers show at least some interest in holistic financial advice, which has important implications for financial professionals,” Dial said.

In terms of workers’ interest in environmental, social and corporate governance (ESG), more than half express an interest in having ESG investments as part of their retirement plan. Millennials and Gen Xers are most interested; participants with incomes of at least $100,000 also are interested. Perhaps not surprisingly, ESG is more attractive if investment performance is comparable, with 65 percent interested in that case, versus only six percent interested even if performance is worse.

“Since our first survey in 2013, employees have expressed considerable regret about not saving more or starting earlier,” said Dial.  “We found similar sentiments now, but employees are counting on employers to help. From progressive plan design to setting them up for success, participants value their retirement benefits.”

Expectations, Worries and Regrets

Some three in 10 workers expect a better standard of living in retirement, yet four in 10 worry about running out of money. Many admit to saving less, particularly during their first five years of working, with six in 10 stating they saved less than they should have.

Not saving more continues to be participants’ biggest life regret, according to Dial. “We found that 35 percent of workers voiced this regret, which was more important to them than doing better in their career, doing better in personal relationships or even doing enough to enjoy life. This clearly speaks to concerns about being ready for retirement.”

However, Dial noted that many workers -- four in 10 Baby Boomers and 3 in 10 Generation X and Millennials -- have advisors who could help them plan for retirement.

Perceptions of Employers

Ninety percent of participants at least somewhat agree that retirement plans are highly valued benefits; participants most likely to strongly agree are men, those with household incomes of $100,000 or more and those with assets of at least $500,000. Although four in 10 want a “kick in the pants” or a “strong nudge” to save more, Boomers are more likely than Millennials and Gen Xers to want to be left alone.

Employer matches are important to workers, according to Dial.

“Two out of three people prefer an employer match over a salary increase, and eight out of 10 would rather have a retirement contribution than help with education costs,” he said.

Automatic plan features are also intriguing to participants. Two out of three believe companies should have automatic enrollment with a six percent default rate, and just over 60 percent believe employers should automatically enroll and automatically increase it each year. Also, four in 10 say enrollment, contributions, and default investments should be completely automatic for everyone.

Impact of the Pandemic

“We weren’t surprised to see that, following a year of the pandemic, participants are now more optimistic about saving, risk and expectations for the future,” Dial said.

Participants gave themselves higher grades on saving for retirement this year (an average of B-) versus 2020 (C+) and 2019 (C-). While thinking about their future in retirement, men tended to be more excited about pursuing hobbies; women were more excited about travel. Additionally, paying off debts of all kinds, including longer-term credit cards and student loans, is a lower priority this year than last.

Risk concerns diminished somewhat from 2020. Worries about outliving retirement savings fell five percent (58 percent in 2021 versus 63 percent the previous year); inflation and interest rate risk concerns decreased four percent; market risk worries went down 10 percent, as did concerns about growth.

“In short, we saw that investing for retirement is a priority for participants regardless of age, that employers are having a positive impact on accumulating assets, workers are now looking for help in withdrawing assets and that optimism is on the rise,” Dial said.

American Century’s Defined Contribution Investment Only (DCIO) assets under management totaled $54 billion as of June 30, and target-date assets under management totaled more than $29 billion as of July 31, 2021.

Survey Methodology

The plan participant survey was conducted between March 8 and 19, 2021. Survey included 1,500 full-time workers between 25 and 65 saving through their employer's retirement plan. The data was weighted to reflect the makeup of key demographics (gender, income, and education) among all American private sector participants between 25 and 65.

Data collection and analysis were completed by Mathew Greenwald and Associates of Washington, D.C.