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How Influential Is Plan Access and Participation on Retirement Planning?

Workers who have participated in an employer-sponsored plan are much more likely than those who have never participated to report that they have recently tried to figure out how much retirement income they will need, according to new research.

Overall, 41% of those with access and currently participating in an employer-sponsored plan said they have engaged in retirement planning in the past two years, according to the Pew Charitable Trusts’ February 2018 issue brief, “Workplace Retirement Plans Tend to Sharpen Focus on Financial Futures.”

The compares with 16% of workers who do not have access and have never participated and, similarly, 14% of workers who do have access but have never participated. Among workers who do not currently participate, 30% of those who do not have access and 33% of those with access but who do not currently participate report that they have recently engaged in retirement planning.

The report, based on survey results of 2,918 Americans aged 18 to 64, examines whether there is a correlation with more planning and saving between those who have access and participate in workplace-based retirement savings plan versus those without access or who do not participate.

“Even when accounting for other worker characteristics, such as education, race/ethnicity, gender, household income, unemployment history and age, those who have never participated in employer-sponsored retirement plans are much less likely to plan for retirement than those who have participated or are currently participating,” the report explains.

The findings further show that a history of plan participation appears to play a role in the resources used in conducting retirement planning. Perhaps not surprisingly, those workers who have never taken part in an employer-sponsored plan are significantly less likely (16%) than those who currently do (39%) or have done so in the past (43%) to say they have used a financial professional or automated statements from financial providers.

“Participation may make workers more cognizant of the need to plan or give them more resources, such as employer-provided tools or seminars. It is also possible that those who have planned are more likely to know they should build retirement savings by participating in available opportunities,” the report explains.

In addition, while roughly half of all respondents who conducted retirement planning in the past two years indicated that they used online tools or calculators, nearly half of those who have never participated in a workplace plan most likely “guesstimated” their long-term retirement needs (48%).

Hypothetical $10,000

To help provide insight into financial priorities, the survey further posed a hypothetical question to respondents about how, if given $10,000, they would divvy up the money among nine categories, including a retirement account. Overall, the report shows that only 36% of respondents said they would put some amount into retirement savings, suggesting that respondents place a higher priority on other needs.

The numbers diverge somewhat depending on access to an employer-sponsored plan. The findings show that 38% to 43% of those currently without access to a plan said they would allocate money to retirement savings, compared with 29% to 31% of those who have access but do not participate.

Meanwhile, those without access on average said they would allocate more than $1,500 — nearly twice as much as those with access who never participated in a plan. “This may be because those with an opportunity to save — but who choose not to — may place less of a priority on putting away money for retirement,” the report suggests. In addition, those without access may be more likely to designate a larger share to retirement compared to those currently participating because they may feel a need to catch up.

Pew suggests that the responses to the hypothetical question could indicate that meeting immediate needs take a higher priority than retirement savings for many workers, suggesting that policymakers may want to explore options that allow workers to save for short-term needs along with saving for retirement.