Defined Contribution Insights: About to Retire and Full of Regret

Diane Gallagher
Diane Gallagher
Vice President, DCIO
Practice Management

An American Century Investments® study of plan participants reveals pre-retirees are looking back on their financial decisions with a lot of regret, especially when it comes to saving for retirement.

Three Financial Regrets of Pre-Retirees

Having hit a certain age, my cousin is on a quest to rewrite aspects of his personal history. This includes scouring family photo albums in an attempt to destroy any evidence of the 1970s. (I’ve seen the photos, so I can’t say that I blame him.) The truth is my cousin is in a great spot. He’s nearing retirement and his biggest regrets relate to disco balls and bell bottoms.

Many of my cousin’s compatriots aren’t so lucky. With retirement age rapidly approaching, many are looking back on the financial decisions they’ve made over their lifetimes with a lot of regret. This is especially true when it comes to saving for retirement.

Pangs of Regret

A study of pre-retirees by American Century Investments provides insights into defined contribution (DC) plan participants’ perceptions and experiences in preparing for retirement. A majority told us they are not saving enough today, and more than 80% acknowledged that they didn’t save enough during the first 10 years of their working lives.

We asked the participants whether they agreed with a number of statements about saving. Their top three responses reflect a lot of regret.

  • “I wish I could talk to the younger me and tell myself to save more than I did.” 82% agreed.
  • “When I was young, I underestimated how much I should be saving for retirement.” 76% agreed.
  • “Not saving enough was one of the biggest mistakes I made in my life.” 57% agreed.

 

Pre-Retirees Regret Not Saving More Early On

Not surprisingly, affordability is the most common obstacle to saving. “I can’t afford to” is familiar language to anyone who spends time working with participants. Whether we’re trying to convince someone to enroll or save more, the most common barrier to investing is paying daily bills and covering everyday expenses.

An Opportunity for Retirement Plan Sponsors

We asked participants to tell us what they should have done better. Their answers focused on household budget suggestions such as reducing spending on things like coffee and dinner out. This may seem like common sense, but it’s important feedback for plan sponsors. The typical DC plan communications strategy highlights the plan’s features and benefits. Our survey suggests there should be greater emphasis on helping participants find ways to save.

Small Changes Could Have Increased Savings

It’s a little like diet and exercise. We all know that we’re supposed to eat right and exercise more. The problem is we need help setting reasonable goals and developing a plan for achieving them. Your retirement plan’s participants are in the same boat when it comes to saving. They know they are supposed to invest for the future, but they need help finding the money to save.

Taking Action

As a plan sponsor, you can shape communications programs to focus on what participants really need to know. The right advice may help participants bridge the gap between knowing what to do and actually doing it. As a result, many may approach retirement with fewer regrets.

The opinions expressed are those of Diane Gallagher and are no guarantee of the future performance of any American Century Investments® portfolio. This information is not intended to serve as investment advice; it is for educational purposes only.