Increasing Saving Rates
While markets remained flat, people saving for retirement were not dismayed with many increasing their savings rates leading to an all-time high in the amount that people were saving for retirement according to Fidelity’s annual analysis of their almost 14 million participants accounting for $1.2 trillion.
Results included:
- 6% increased their savings rates
- Contributions peaked at 12.7% including the company match
- Accounts over ten years old averaged $240,700
- Only 4.8% shifted their investments up from 4.5% even with significant market volatility
- Overall, average account balances in 401ks dipped slightly from $91,800 in Q1 2015 to $87,300 in 2016
Accounts in smaller companies also saw some positive movement.
Both companies and workers are realizing that there is a crisis coming if people do not start saving more – a Gallup poll showed that two-thirds of people prefer saving over spending. States are also realizing the power of saving for retirement at work with over half implementing or considering workplace plans to cover smaller companies where no options are available.
One of the issues with participant directed retirement plans, especially for a mobile workforce, is that people end up with multiple accounts in DC plans and IRAs which makes it hard if not impossible for them to manage. Over 40% of every dollar invested in a DC plan by workers under 55 years old cash out their DC plan. Though critics of the DOL rule argue that investors with smaller accounts will have less access to advice because advisors will not want to take on fiduciary responsibility, it could lead to more money remaining in DC plans and not rolling out into an IRA.
Over half of the DC participants leave their money in their previous plan and only 20% have a well thought out plan about rolling over their assets according to research from the Retirement Clearing House. With help from their record keeper, participants can be encouraged to roll in all assets from disparate IRAs and DC plans from former employers. The benefit beyond helping employees who will undoubtedly be more productive if financial stress is reduced as well as being better prepared for retirement when the time is right, more assets in the plan means better service and pricing which many companies are starting to realize. The key to effectively managing roll ins and assets of workers separated from service is having the right record keeper who can manage the process and communications with retirees.
