1 Findings from the Retirement Confidence Survey: Implications for Retirement Planning How to Increase the Effectiveness of Financial Education: Lessons from Economics and Psychology Dartmouth College October 17, 2005 Craig Copeland, Employee Benefit Research Institute

2 7 in 10 Workers Say They Have Saved for Retirement Not including Social Security taxes or employer-provided money, have you (and/or your spouse) personally saved any money for retirement? These savings could include money you personally put into a retirement plan at work. (2005 Workers n=1,001) Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., Retirement Confidence Surveys

3 Americans are More Likely to Save for Retirement Than for Any Other Goal Other than retirement, for what are you (and your spouse) saving? (Workers n=501; Retirees n=252) (Top mentions, multiple responses accepted) Children's/grandchildren's education Money for an emergency General well being Retirement Home purchase or renovation A vacation Nothing Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

4 In total, about how much money would you say you currently have in savings and investments, not including the value of your primary residence? Please include savings, certificates of deposit, stocks, bonds, mutual funds, workplace retirement plans, and other investments (Workers responding n=818; Retirees responding n=190) Most Have Little in Savings Less than $25,000 $25,000- $49,999 $50,000- $99,999 $100,000- $249,999 $250,000 or more Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

5 Retirement Needs Calculation The first step towards planning for retirement

6 Only 2 in 5 Workers Have Attempted to do a Retirement Savings Needs Calculation Have you (and/or your spouse) tried to figure out how much money you will need to have saved by the time you retire so that you can live comfortably in retirement? (2005 Workers n=1,001) Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., Retirement Confidence Surveys

7 Consequently Almost Half of Workers Guess the Amount They Need to Save for Retirement How did you (or your spouse) determine this amount? (Workers attempting calculation and/or reporting amount needed for retirement, n=929) (multiple responses accepted) Guess Ask a financial advisor Cost of living/lifestyle/current spending Other Do your own estimate Spouse calculated Read or hear that is how much is needed Fill out a worksheet or form Use an on-line calculator Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

8 $1,000,000 to $1,499,999 $250,000 to $499,999 $1,500,000 or more Under $250,000 Don’t know/ Don’t remember $500,000 to $999,999 Refused Could not do calculation How much did you (and/or your spouse) calculate you would need to save in total by the time you retire? (Among workers trying to do a retirement needs calculation, n=332) One-third who have done a calculation can’t remember the result. Source: EBRI/ASEC/Greenwald, 2004 Retirement Confidence Survey

9 $1,000,000 to $1,499,999 $250,000 to $499,999 $1,500,000 or more Under $250,000 Don’t know/ Don’t remember $500,000 to $999,999 Refused Could not do calculation How much did you (or your spouse) calculate you would need to accumulate in total by the time you retire?/How much do you think you (and your spouse) will need to accumulate by the time you retire so that you can live comfortably in retirement? (Workers n=1,001) Workers Calculating the Amount Needed for Retirement Report Higher Accumulation Needs Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

10 Very confident Not at all confident Somewhat confident Not too confident Those Calculating a Specific Goal are Also More Confident They Will be Able to Save That Amount How confident are you that you (and your spouse) will be able to accumulate this amount by the time you retire? (Workers reporting amount needed for retirement, n=871) Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

11 Do calculations or educational materials matter for planning? Does behavior change?

12 Working Through a Savings Calculation Can Affect Savings Behavior Did you (and/or your spouse) make any changes in your retirement planning as a result of trying to figure out the amount you will need to have saved by the time you retire? If yes, what changes did you (and/or your spouse) make? (Workers trying to do a retirement needs calculation, n=469) (n=218) (multiple responses accepted) Started saving more Changed allocation of money Researched other savings methods Other Reduced debt Started saving less Enrolled in 401(k)/ opened another account Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

13 Educational Material From an Employer May Lead to a Change in Savings Behavior or Allocation Strategy Did you (and your spouse) make any changes in your retirement planning as a result of the material you received from your employer? If yes, what changes did you make? (Workers receiving educational material, information, or seminars, n=446) (n=93) (multiple responses accepted) Started saving more Changed allocation of money Researched other savings methods Other Enrolled in a 401(k)/ opened another account Started saving for the first time 42% Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

14 When Offered, Almost Half Request Investment Advice; 3 in 4 Implement at Least Some Recommendations Did you request and receive specific recommendations on how you should invest your money? If yes, did you implement all, some, or none of the recommendations you received? (Workers provided with investment advice by employer, n=248) (n=114) Requested and ReceivedImplementation Some of the recommendations 59% None of the recommendations 24% Don’t know 1% All of the recommendations 16% Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

15 What do people use to plan for retirement? What is the most helpful?

16 Input from your spouse Advice of family, friends, or co- workers Advice of a financial professional Written material received at work Newspapers, magazines, or other written material Online professional investment advice services Information available over the Internet Information from television or radio Computer software Information from seminars When you (or your spouse) (are/were) making your retirement savings and investment decisions, (do/did) you use…? (Workers saved for retirement, n=365; Retirees saved for retirement, n=184) Some Often-used Sources of Financial Advice May Provide Little Real Help Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

17 Workers Say They are Most Likely to Use Investment Advice If Provided in Person If an employer offered you access to this type of professional investment advice, how likely do you think you would be to take advantage of it if the advice was available... ? (Workers without employer-provided investment advice, n=753) Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

18 If an employer offered you access to this type of professional investment advice, how likely do you think you would be to take advantage of it if the advice was available... ? (Workers without employer-provided investment advice, n=753) 2 in 3 Workers Not Offered Advice Say They Would Be Likely to Use It If Offered in Person Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

19 Savers Most Often Find the Advice of a Financial Professional Helpful Which (is/was) most helpful to you? (Workers saved for retirement, n=356) Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey.

20 Individual access to a financial planner Newsletters/magazines Online investment advice services Brochures Workbooks/worksheets Retirement benefit statements Seminars or group meetings Software programs Videos or CD-ROMs None Other online services Which was the most helpful to you? (Among workers given educational material or seminars through employer, n=269) In-person formats where workers can ask questions, or personalized materials are seen as most helpful. Source: EBRI/ASEC/Greenwald, 2004 Retirement Confidence Survey

21 Do people think they are on track? Why not? Do they think they will make it?

22 More Than Half of Workers Feel They Are Behind Schedule When it comes to planning and saving for retirement, would you say you are on track, ahead of schedule, or behind schedule? (Workers n=1,001) A lot ahead of schedule On track A little behind schedule A little ahead of schedule A lot behind schedule Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., , 2005 Retirement Confidence Surveys

23 Many Recognize Role of Expenses, Fewer Acknowledge Other Factors Keeping Them Behind Schedule How big a role has each of the following played in keeping you behind schedule in planning and saving for retirement? (Workers behind schedule, n=521) Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey.

24 Thinking about your current financial situation, how would your describe your level of debt? (Workers n=1,001; Retirees n=252) 6 in 10 Workers Consider Their Level of Debt To Be a Problem Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

25 2/3rds of Workers Are At Least Somewhat Confident of Having Enough Money for a Comfortable Retirement Overall, how confident are you that you (and your spouse) will have enough money to live comfortably throughout your retirement years? (2005 Workers n=1,001) VeryNot at allSomewhatNot tooDon’t know/Refused Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., Retirement Confidence Surveys

26 Thinking realistically, what kind of financial lifestyle do you think you (and your spouse) will have in retirement? (Workers n=500) How would you describe your current financial lifestyle? (Retirees n=252) 4 in 5 Workers Think They Will Have at Least an Adequate Standard of Living in Retirement AdequateWell offStruggling Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

27 About what percentage of your pre-retirement household income do you think you (and your spouse) will need to live comfortably in retirement? By pre-retirement income, I mean your household income right before you retire. (Workers n=500) About what percentage of your pre-retirement income is your current household income? (Retirees n=252) 3 in 5 Workers Expect to Live Comfortably on 70% or Less of Their Pre-retirement Income; Most Retirees Have More Less than 50% About % 105% or more Don’t know/ Refused About 50-70% About 70-85% About 85-95% Lower (Don’t know %) Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

28 Extra Slides for Discussion Other Elements for Financial Planning

29 How much income do you think you will be able to get from this nest egg each year in retirement without running out of money? (Workers reporting amount needed for retirement, n=871) Some Workers May Overestimate How Much Income Their Nest Egg Will Generate $35,000 to $49,999 $15,000 to $24,999 $50,000 to $74,999 Less than $5,000 each year $100,000 or more $25,000 to $34,999 Don’t know $75,000 to $99,999 $5,000 to $14,999 Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

30 For how many years do you expect to be retired (Workers planning to retire, n=939) At the time that you retired, how many years did you expect your retirement to last? (Retirees n=252) Half of Workers Expect to be Retired for 20 years or More 10 to 14 years 20 to 24 years Don’t know/ Refused 15 to 19 years 25 to 29 years 30 years or more Less than 10 years Did not expect to retire Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

31 Many Retirees Feel They Don’t Need or Can’t Afford an Annuity Why have you not purchased or looked into purchasing a financial product that pays a guaranteed income for life? (Retirees not taking any action toward a financial product that pays a guaranteed income for life, n=127) (multiple responses accepted) Don’t need it Don’t believe in product/ Suspicious of product Other Can’t afford it/Too expensive Don’t know/Refused Just haven’t done it/Didn’t think of it Already have pension/annuity Aren’t aware of product Don’t know where to go for information Not interested in product/ Have other products Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

32 Very Few Workers Participate in Automatic Savings Arrangements Outside of Work, but Most Know of Them Are you currently saving for retirement outside of work using an automatic arrangement like this? (Workers n=1,001) Before today, were you aware that you could save automatically for retirement in this way? (Workers not using an automatic savings plan, n=822) No 85% Yes 15% Don’t know 1% Yes 68% No 31% Currently Saving Outside of Work Using Automatic Savings Plan Aware Could Save Automatically Outside of Work (n=822) Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey

33 An option that automatically raises your contribution by a certain percentage or amount whenever you receive a pay raise An option where a professional financial manager makes investment decisions for you based on your responses to a questionnaire A fund option that is designed for people of your age and income level and automatically becomes more conservative as your retirement date nears A fund option that maintains a pre-set level of risk and generally has a mix of conservative, moderate and aggressive investments If this were part of your workplace savings plan, would you be very likely, somewhat, not too, or not at all likely to use it, or does your plan already have this feature? Do you participate in it? (Workers participating in a workplace savings plan, n=461) A Large Minority of Participants Have Lifestyle Funds Available as Part of Their Plans—and Use Them Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2005 Retirement Confidence Survey