Skip to main content

You are here

Advertisement

Retirement Security: What’s Changed Since the Recession?

While workers are now more secure in their retirement preparations than before the Great Recession, they still face a number of shortcomings, says a new report.

The Transamerica Center for Retirement Studies report, “A Retirement Security Retrospective: 2007 Versus 2017” illustrates the resilience of the U.S. retirement system, especially with regard to 401(k) plans, but emphasizes that most workers still have work to do even if they have recovered from the recession.

Among those offered a 401(k) or similar plan by their employers, participation and contribution rates remain strong since 2007 pre-recession levels. Approximately 8 in 10 workers who are offered a plan participate or have money invested in the plan — a finding that remained relatively consistent between 2007 (77%) and 2017 (80%).

And while contribution amounts dipped slightly during the years of the recession and its aftermath, the level appears to have rebounded to 9% (median) in 2017, which was consistent at 8% (median) of annual pay in 2007.

One drawback, according to the report, is that retirement plan leakage in the form of plan loans and early withdrawals appears to be an ongoing issue. By 2017, a net 30% of workers had taken some form of loan and/or early withdrawal from a 401(k) or similar plan, or an IRA, the report notes. The proportion of workers who had taken loans (20%) was slightly higher than those who had taken early withdrawals (18%).

Guessing Game

Meanwhile, many workers reportedly are also still “guessing” their retirement savings needs. In 2017, workers estimated they would need $500,000 (median) in retirement, less than the $650,000 (median) cited in 2007. Nearly half of workers (49%) who provided an estimate of their retirement savings needs in 2017 said that they “guessed” the amount needed — a finding that is only slightly lower than 2007, when 51% guessed.

On the other hand, the percentage of workers who reported having some form of retirement strategy slightly increased from 53% in 2007 to 61% in 2017. Yet, only 15% of those workers had a written retirement strategy, while the other 46% had an unwritten retirement strategy.

“While the growth in workers’ retirement accounts since pre-Great Recession levels is impressive, many workers may not be saving enough to meet their retirement income needs – and most could benefit from planning-related activities such as estimating savings goals and setting forth a financial plan,” advises Catherine Collinson, CEO and president of Transamerica Institute and TCRS.

In that regard, there was a slight increase in the use of professional financial advisors. Among workers investing for retirement, 38% indicated they used a professional advisor to help manage their retirement savings or investments in 2017 — up from 32% in 2007.

Employer Offerings

Despite facing difficult cost-cutting decisions during the Great Recession, 401(k) plan sponsorship rates remained strong, with some employers actually enhancing their plans. The study finds that 72% of employers offer a 401(k) or similar plan, which was unchanged from 2007.
In addition, the offering of matching contributions showed a modest increase. Among employers that sponsor a plan, the vast majority (84%) in 2017 offered a matching contribution, representing an increase from 2007 when 80% indicated they offered a match.

The study also found, however, that automatic enrollment has remained flat among sponsors. Approximately one in five 401(k) plan sponsors offer automatic enrollment — a finding that has remained relatively static between 2007 (23%) and 2017 (20%).

One positive for improving savings levels is that the default contribution rate increased from 3% (median) in 2007 to 5% (median) in 2017.

Workers, Employers and Policymakers

TCRS also put forward a number of recommendations for workers, employers and policymakers alike.

Workers ultimately “own” their future retirement but many are not yet taking steps to increase their likelihood of success. At the same time, they need support from employers and policymakers to do that, TCRS notes.

The firm suggests that policymakers should consider recommendations to expand retirement plan coverage by including part-time workers and encouraging employers to adopt “automatic” features. TCRS further recommends the promotion of “more accurate goal-setting among participants” by requiring retirement plan account statements to provide an illustration of savings as future retirement income.