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KANSAS CITY, Mo., Sept. 16, 2013 -- If you could go back in time, what advice would you give yourself? More than four out of five pre-retirees wish they could talk to their younger selves and tell them to save more for retirement than they did, according to a national survey conducted by American Century Investments.
The study, completed earlier this year with 1,054 full-time employed individuals between the ages of 55 and 65 who currently participate in their employer-sponsored retirement plan, looked at the opinions of an often-overlooked group, according to American Century Investments Vice President, Defined Contribution Investment Only (DCIO) Practice Management Diane Gallagher.
Review highlights from the national survey among plan participants approaching retirement.
"The spotlight has been on the decisions of the now-retiring Baby Boomers and the buying habits of the completely connected Millenials," Gallagher said. "We looked at pre-retirees, a group of Americans at an important crossroads in which their actions, or inactions, of the past may significantly affect their futures."
Slightly more than three out of four survey participants reported underestimating how much to save for retirement when they were younger. More than half -- 57 percent -- felt "not saving enough was one of the biggest mistakes I made in life." The study also found that women and less wealthy individuals or those with lower incomes were more likely to express regret about their actions earlier in their lives.
The group's introspection about their saving behavior earlier in their lives is logical, Gallagher said. "They have retirement looming in front of them within the next 10 years. Unfortunately, they no longer have the benefit of time working in their favor."
Barriers to Saving Early
In terms of barriers to beginning to save for retirement earlier, the study revealed an inconsistency. More than 80 percent stated they did not save enough for retirement during the first 10 years of their working lives. Nearly 40 percent started saving in their thirties, and more than one out of four did not begin saving until age 40. Pre-retirees named "not earning enough" (45 percent) and "had to pay off debts" (also 45 percent) as the primary reason they did not save earlier with "procrastination" and a "focus on spending for an enjoyable lifestyle" also noted as barriers. However, 56 percent acknowledged they could have begun saving earlier than they actually did.
A common thread connects savings rates with managing household finances, according to Gallagher. "Study participants agreed they could have taken steps earlier to save more, including simple budgeting changes like paying more attention to coffee and movie rentals or dining out," she said.
Concerns About Saving Habits vs. Investing Decisions
Interestingly, although almost half of pre-retirees stated they knew very little about how to invest, they had few regrets about how well they did in investing their retirement accounts. When asked to grade themselves, almost half admitted they didn't know very well how they were investing for retirement, yet more than half gave themselves an "A" or "B" when it came to investing for retirement.
Further, one in five said they deserved a "D" or an "F" in putting money away. "Nearly every participant rated starting to save earlier, investing enough to earn an employer's match and contributing more, as 'important,'" Gallagher said. "But when we asked what advice they would give to younger workers, they were far less likely to name investment-related practices like rebalancing or diversification."
No more than one out of four pre-retirees believed they did an "excellent" or "very good" job in the following areas of investing: "learn more from the employer about the plan," "stay the course with the investment approach," or "know all of the plan choices offered."
However, pre-retirees did note one commonly-cited investment behavior as something they did well: take advantage of an employer-sponsored plan.
When asked about specific types of retirement investing vehicles, nearly half were familiar with target-date funds, and roughly half felt they were a good idea. Some six out of 10 respondents reported that their plan offered target-date funds and two out of three invested in them.
Plan Sponsor Decisions Matter
Pre-retirees appreciated their employer offering a plan, selecting a provider and choosing investment options for them: A majority gave their employer a grade of "A" or "B" in providing a retirement plan that offers the opportunity to accumulate retirement savings. However, just under half of respondents gave their employer an "A" or "B" when it came to supporting their retirement plan with education, tools and information.
"Because of this group's feelings about difficulties with savings, education programs should possibly focus on managing household finances in order to help find more money to save," said Gallagher. "Also, two out of three respondees felt employers should require attendance at plan education programs."
In addition, nearly 60 percent believed automatic enrollment would have increased their retirement savings; 73 percent felt that automatic increases would have made a difference in their accounts.
Also, nearly six out of 10 pre-retirees felt that access to target-date funds would have helped increase their nest eggs.
"This suggests to us that retirement plan sponsors should consider setting up effective defaults to encourage increased savings rates," said Gallagher. "They also can help their participants work toward diversification by using a target-date series as the qualified default investment alternative (QDIA). After that, they can build education programs around financial wellness."
"Ultimately, we believe that understanding pre-retirees' experiences may help frame better savings opportunities and education programs," she said.
American Century's DCIO assets under management total $33 billion, including $8 billion in American Century One Choice Portfolios® target-date funds as of 7/31/13.
Data collection and analysis were completed by Mathew Greenwald & Associates, Inc.
American Century Investments is a leading privately held investment management firm, committed to delivering superior investment performance and building long-term client relationships since 1958. Serving investment professionals, institutions, corporations and individual investors, American Century Investments offers a variety of actively managed investment disciplines through an array of products including mutual funds, institutional separate accounts, commingled trusts and sub-advisory accounts. The company's 1,300 employees serve clients from offices in New York; London; Hong Kong; Mountain View, Calif. and Kansas City, Mo. James E. Stowers Jr. is founder of the company and Jonathan S. Thomas is president and chief executive officer. Through its ownership structure, more than 40 percent of American Century Investments' profits support research to help find cures for genetically-based diseases including cancer, diabetes and dementia. For more information, visit www.americancentury.com.
The survey was conducted in February 2013 among 1,054 full-time employed individuals between the ages of 55 and 65 who are currently participating in their employer-sponsored retirement plan. Data were balanced to key demographics (income, gender and education) of all American private sector plan participants between 55 and 65 according to estimates from the 2012 U.S. Consumer Population Survey. Data collection and analysis were completed by Mathew Greenwald & Associates, Inc., of Washington, D.C.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
You should consider the fund's investment objectives, risks, charges and expenses carefully before you invest. The fund's prospectus or summary prospectus, which can be obtained by visiting americancentury.com, contains this and other information about the fund, and should be read carefully before investing.
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