New research by the Principal Financial Group finds that many workers lack awareness of what’s in their retirement accounts — but at the same time, many don’t feel comfortable making their own investment decisions and are looking for help.
According to the research, roughly a third of U.S. workers say they are not sure what they are invested in and rely on the default investments set for them within their retirement accounts to fund their futures.
In the same vein, however, the research finds that nearly 7 in 10 survey respondents want help or someone to make decisions for them, while only 3 in 10 say they feel confident making investment decisions on their own, as investors have a lot of concerns and little confidence.
The top three concerns that investors say they face include:
- the rate of return not keeping up with inflation (33%);
- extended periods of investment losses (31%); and
- not knowing who to trust (29%).
Investment Education
The findings also reveal a correlation between the availability of financial resources and professional advice and investors being more confident. As such, investment education could be key to boosting investor know-how, the firm suggests.
“This opens a door for financial professional and business decisionmakers to step in and help investors connect with educational resources and financial advice,” Principal notes. “We see confidence levels increase by a dramatic 85.7% when investors are offered support from a financial professional.”
So what’s holding them back? According to the findings, cost is the number one reason investors don’t seek out professional financial advice.
Moreover, many investors don’t connect needing financial advice when their salaries increase, or savings account balances rise. Instead, they cite major milestones—like reaching a certain age or starting a family—as the inspiration to work with a financial professional. To that end, Principal found that 46% are motivated by age and 41% are motivated by a life event. In fact, the average age at which survey respondents think they should seek financial advice is 35 years old.
Yet, amid the concerns and the complexity that comes with long-term investing, the data further shows a large amount of trust among participants with their plan providers. Principal found 60% of workers trust that their retirement plan providers and investment companies are helping them reach their retirement goals.
What many younger investors may not know, however, is that their employer’s current retirement plan or employer may already offer built-in financial professional services — with no additional costs. This, combined with the plan’s qualified default investment alternatives (QDIA) and explaining QDIA benefits, could be a valuable way for them to help build their retirement security—and their investment know-how and confidence, Principal suggests. “This creates a huge opportunity for plan sponsors and advisors to play a guiding role in helping more U.S. workers feel confident and secure in their financial futures.”
Accordingly, the firm suggests that building a relationship with younger retirement savers may contribute to healthier savings behaviors—particularly with many retirement savers starting families and growing careers in their 20s and 30s. “By inspiring this group of investors to build strong financial habits and work with a financial pro earlier in their careers, they’ll be on track to build stronger retirement security in their futures,” the firm stresses.
The findings are based on an online “pulse” survey conducted by Principal from May 4–16, 2022, among 698 adult workers who have a retirement plan with services by Principal.
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