To improve the chances of generating a comfortable retirement income, researchers today urge savers with access to a workplace retirement plan to defer 10% or more of their current salary.
While saving more is always a positive move, many find that higher deferral rates are not realistic for their personal situation. Who are the savers who defer at least 10% and score the highest among retirement readiness studies?
If you assume they are all older workers, with many years of saving at the workplace, earning the highest level of income, you would be wrong.
Putnam research found the average age of participants in an employer-sponsored defined contribution plan deferring 10% or more was 41.6 years. The study, which analyzed the retirement savings trends among more than 4,000 working Americans in 2013, also showed that the savings deferral rate was not dependent on income level. The average individual in this group did not have the highest level of household income.
The majority of 10% savers — 58% — had a household income of less than $100,000. In fact, 38% earned between $50,000 and $100,000. Many of those earning less than $50,000 were also able to set aside 10% — about 20% of the group in this survey.
At the high-income level of the spectrum, 30% of the 10%+ savers had a household income ranging from $100,000 to $175,000, and only 12% had an income higher than $175,000.
Slightly more younger workers than older workers are saving 10% or more: 34% were in the 18- to 34-year-old age group, compared with 32% in the 50- to 65-year-old age group.
Many investors choose a retirement savings plan that is conducive to “set and forget,” or they may make their own investment choices and take on the responsibility of ongoing management. In this study, research found many of the high-deferring investors use a professional advisor. Among those saving 10% or more, 35% have an advisor and 34% have a formal written financial plan.
Whether it’s the encouragement or the strategies, financial advisors may offer individuals the advice and help they need to meet the goal of saving 10% or more. However they get there, savers that defer 10% or more of income continue to score higher in retirement readiness. This underscores the fact that savings rates are the prime determinant of retirement preparedness. When it comes to saving — more is more.
The Putnam Lifetime Income Survey, with research methodology provided by the Putnam Institute, was conducted online by Brightwork Partners and completed in January 2014. The survey of 4,148 working adults age 18 to 65 was weighted to U.S. Census parameters for all working adults. U.S. Census data estimates (2012 Statistical Abstract, Table 690: Money Income of Households).