Save Yourself: Keys to a Secure Retirement

$2.4 trillion. That’s what U.S. households spent on credit cards in 2012[1] – more than 10 times the amount employees contributed to 401(k)s and other private defined contribution retirement (DC) plans.[2] While some of that spend was clearly for necessities, more than 100 million flat screen televisions shipped to the United States between 2010 and 2012. Seems that in the battle to build nest eggs, purchases like big screen TV’s often edge out savings.

To state the obvious, Americans overall aren’t saving enough for retirement. That said, results from the Investment Company Institute’s retirement savings survey released Jan. 29 did nothing but reinforce my view – DC plans are the key to changing that, and to putting U.S. workers on track to build sufficient savings for a secure retirement. Here are four key points from their report:

  • 91 percent of households with DC accounts say that employer-sponsored retirement accounts helped them think about the long term, not just current needs.
  • 90 percent of households invested in DC plans say these plans make it easier for them to save for retirement.
  • 87 percent of DC-owning households agreed that the tax treatment of their retirement plan (tax-deferred growth) is a big incentive to contribute.
  • 43 percent of households with DC accounts agreed with the statement: “I probably wouldn’t save for retirement if I didn’t have a retirement plan at work.”

In a world where instant gratification often reigns, making it easier to save is critical. Through ongoing payroll deduction, DC creates retirement savings discipline for millions of workers, where discipline would not otherwise exist.

Is there room to strengthen outcomes? Absolutely – through improved plan design – in particular, broader and better use of automatic savings features. Today, nearly half of retirement plans use auto enrollment, but nearly two-thirds of those plans default employees at a savings rate of 3 percent or less. History has shown that because of inertia, employees are unlikely to increase that rate on their own, and less than three in 10 plans have adopted both automatic enrollment and automatic annual increases to employee savings rates.[3]

Financial professionals and plan providers must continue to push these features, and continue to carry an important message to employers – reduced employee financial stress can drive meaningful improvements in employee productivity and lower costs.

It essentially comes down to human behavior. Better plan design is a critically important strategy to ensure workers start saving early and at high enough rates. Workers must also shift some of their passion for spending into a passion for savings.

Plain and simple, using the figures above, if Americans reduced their credit card spend by 10 percent, they could more than double the amount going into their retirement savings. That’s really the key – spend less and save more.  At least 10 percent a year over a working career is a good rule of thumb.

We are making retirement plans work better, but individuals must play a role by saving themselves, as well.


[1] U.S. Census Bureau estimate.

[2] Based on Cerulli estimates for 2012.

[3] Plan Sponsor Council of America’s 56th Annual Survey, Oct. 2013.