If ever there was an enterprise inextricably
tied to numbers and statistics, it is our retirement industry. Numbers are the bedrock of retirement plan
operations and recordkeeping. We continually
analyze rates of worker access to retirement savings options. We compare the U.S. savings rate with our
counterparts around the world (sometimes unfavorably, at least by recent
history). We try to quantify such
subjective things as worker confidence in a secure retirement. Some federal agency number crunchers even think
they can calculate how much retirement savers lose as a result of investment
advisor conflicts of interest. Stats and
numbers: they are part and parcel of our business.
I recently came across a
thought-provoking study compiled by the Transamerica Center for Retirement
Studies, entitled Retirement Readiness
Survey 2015. The Center is a
division of Transamerica Institute, a nonprofit private foundation funded by
Transamerica Life Insurance Company and other third party funders. This 15th annual survey is one of
the longest-running of its kind, and polls American workers and their employers
to explore attitudes and behaviors on retirement benefits and security. Many of its queries were measured by level of
interviewee education, which – like it or not – is often a predictor of both
income and financial literacy.
One of the questions commonly asked in
such studies concerns having a retirement strategy, generally meaning whether
an effort has been made to calculate how much will be needed in order to have a
reasonably comfortable retirement. There
are lots of variables affecting retirement security that can’t be fully known. They include the ups and downs of securities
markets, the general state of our U.S. economy, inflation rates, our health, or
the age when we choose or are forced to leave the workforce. But, in order to set savings goals, it’s
imperative to have some idea of what the target is.
The Transamerica study may be overly
generous in measuring the share of the U.S. population that has a retirement
strategy. It counts both written and
unwritten strategies. An “unwritten” strategy seems almost a
contradiction in terms, and I’m inclined to discount its value in any serious effort
to measure Americans’ self-assessment of their retirement preparedness.
Only a small minority have made an
attempt to create a tangible, written retirement plan. Among those who have, a notable predictor is the
education level of the survey subject. Generally
speaking, the higher the level of educational attainment, the more likely that the
individual has made a serious attempt to develop a savings strategy.
This may be the result of several factors
that often intertwine. Higher education levels commonly translate to
higher lifetime earnings. Higher
earnings may not only lead to more disposable income that can be saved, but may also mean being employed where there
is a retirement plan in place. Access to
a retirement plan generally brings with it at least basic information on
investing, as well as encouragement to save through that employer’s plan. Such individuals are the most likely to think
about their future retirement security, and take action.
Among workers with a high school
education, or less, only seven (7) percent had a written retirement strategy or
plan. In sharp contrast, 24 percent of
those with post-graduate college attendance or a post-graduate degree had a
written plan. College graduates with a
basic bachelor’s degree were found to have a written plan in 18 percent of
interviews. Among those with trade
school or non-degreed college attendance, 13 percent could point to a written
plan they had created. Assuming similar
numbers of interviewees in the four groups, an average of just 15 percent had a
written plan or strategy.
There are other statistics in the
Transamerica study that are worth sharing.
The use of a professional financial advisor to help with investment
decisions and planning for future retirement security also showed a great
disparity when measured against the education of the interviewee. Forty seven percent of those with advanced
degrees or graduate school exposure had used a financial advisor, while 25
percent of those whose education was limited to high school level did so. In between were college graduates at 49
percent and “trade school/some college” interviewees at 33 percent.
Asset allocation on the spectrum from
conservative to aggressive also varied markedly by education. Seventy-nine percent of those with a
post-graduate degree were invested either in stocks or in a balanced mix of
stocks, bonds and other investments.
Only 49 percent of those with high school level education were invested
this aggressively. College grads and
trade school/some college folks were positioned in between; the higher the
education level, the more aggressive the investing. Rather alarming, Transamerica interviewers
found that 35 percent of those with high school level education were unsure of
what they were invested in. One need
look no farther than this to support the contention that Investment education
is critically important, apparently more so for those with less formal
education.
Participation rates for those who are
actually offered such an opportunity varied similarly across educational
lines. Eighty-seven (87) percent of
those with graduate school exposure – and those with bachelor’s degrees as well
– participated when they were given the opportunity, while only 67 percent of
those educated through high school or less education took advantage of the
opportunity. Those with trade school or
less-than-degreed college exposure accepted a participation offer 79 percent of
the time.
It should not be a great surprise that
contribution rates of those more highly educated would be greater, given the generally
reliable likelihood that higher education leads to higher lifetime income. Obviously there are exceptions, but they
mostly prove the rule. The average plan
participant with a post-graduate degree – and those with a bachelor’s degree,
as well – contributed 10 percent of income to retirement saving. Both those high school-level-educated and having
trade school or non-degreed college exposure contributed six percent of income,
on average.
There are many other statistics of interest
in Transamerica’s Retirement Readiness
Survey 2015; these are among those that stand out. Certainly there are facts and circumstances
that make saving more difficult for some workers than for others. Balancing basic financial needs against
income is an obvious one; these needs differ at different stages of life. But basic investment education and savings
habit formation, with access to some
kind of formal retirement savings, can have a positive impact on saving
outcomes, even if the first steps are small ones. For that reason it is critical that we
preserve and expand access to retirement savings options, as well as to
meaningful investment education and advice.
