Young Workers Not Saving Article

[Mountain_Mike]

Most of us on this board must not be typical...

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A penny saved? Not for young workers

Study says only 46% of workers under 30 give to 401(k) plans, up just 2% from '02 to '04.

May 10, 2005: 11:28 AM EDT


NEW YORK (CNN/Money) – Despite increased efforts by employers to encourage workers to save for retirement, young employees continue to ignore their 401(k) plans and participation rates overall improved only slightly in the past few years, said a study released Tuesday.

The study, conducted by global human resources firm Hewitt Associates, found that only 46 percent of workers under the age of 30 participated in their company's 401(k) plan.
Moreover, the participation rate among the more than 2.5 million eligible employees surveyed increased just 2.1 percent between 2002 and 2004 to 70.3 percent.
"Despite all the attention around retirement, it's discouraging to see that many people -- especially younger workers -- still do not feel a sense of urgency to take control of their financial security by investing proactively in their 401(k) plans," said Lori Lucas, director of participant research at Hewitt Associates.

Of those who did participate, nearly one in four had a balance of less than $5,000, and the average 401(k) balance reached $69,000, said Hewitt.

The study also found that one in three people put in just enough to obtain the full company match, and that 22 percent of participants did not contribute even enough to obtain the match.

More…
http://money.cnn.com/2005/05/10/retirement/hewitt/index.htm

 

[Cut-Throat]

Study says only 46% of workers under 30 give to 401(k) plans, up just 2% from '02 to '04.

I'm surprised that it is this high. When I was working 4 years ago, the people over 40 at my company were mostly not contributing at all. The number was around 20% that contributed something.

 

[azanon]

During my wife's very early career, we anticipated her jumping around from job to job, which is pretty typical behavior in the beginning of your career. Instead of just having a bunch of fragmented 401(K) accounts all over the place and/or instead of having to do rollovers once every year or two, we just used Roths for that time period. Most of the places that employeed her only offered matching contributions based on a tenured setup, so we just didnt bother. Also typical of a sub30 year old, we couldnt, at the time, afford to max both a Roth and a 401(K) so that wasnt an issue then.

Point: those statistics can be a little misleading. Just because they're not using the 401(k) doesnt mean they're not saving.

 

[wildcat]

I spent three years working for the man straight out of college prior to becoming a broke graduate student again and I had the opportunity to participate in a 401K. From my perspective, the company did a horrible job explaining exactly what an employee could contribute and/or the employees were just not well educated in personal finance. For example, we had a match on 2-3% of what we put in but the employer didn't go to great lengths to explain that an employee could put in more money beyond the match or i.e. the 401K limit. Most people assumed 2-3% was the max b/c that was the match. : : Quite a few participated but the savings rate was incredibly low.

Another misconception I believe many have today is in respect to stock market returns. Many people still believe the late 90's returns are attainable and assume the 20%+ gains will compensate for a late start. However, if we get low returns for an extended period of time = much more in the way of savings to compensate for lower returns in my opinion.

 

[Marshac]

Of those who did participate, nearly one in four had a balance of less than $5,000, and the average 401(k) balance reached $69,000, said Hewitt.

So 25% had < $5k, yet the average was $69k? What was the median amount? Something seems off with those numbers. Since they reported the bottom quartile, what about the top quartile?

 

[cute fuzzy bunny]

This is about the 20th one of these I've seen, and the other 19 were fairly bogus.

They want $350 to read the report, which apparently includes their methodology.

What I can glean is that this was a survey forwarded by HR departments who are customers of Hewitt. So at a minimum its how people invest in their 401ks that work for companies who are interested in contracting with an HR advisory and consulting business. Probably heavy white collar professional, higher salaried folks.

That companies do little to explain this to new employees, many of which completely dont understand or arent thinking about retirement savings, is really a tragedy. I used to take new employees in my department out to lunch with a couple of co-workers who are savvy investors. We'd give them a run-down of their options, answer a lot of questions, and generally get them up to speed on what they could do. My pitch to the kids I hired out of college was to put the minimum (2% - no company match...there was a separate company pension program) into the s&p500 index fund and forget about it until they learned more about investing and wanted to get fancier. In general, at that savings level starting in their early to mid 20's with a 40 year investment horizon, even if they did absolutely nothing else for the rest of their lives they'd still have a comfortable retirement nest egg.

 

[BUM]

companies do little to explain this to new employees

Sad but true. ERISA and ESOP benefit plans start with the word EMPLOYEE. Mgmt. has a fiduciary responsibility to those employees. Our corporate attorney reminded us of that from time to time. So we would have 1/4ly meetings to advise employees how to work the plan. Interesting though how some ignored even a 50% match, saying "We cant afford it". Yet they show up at the Christmas party in furs jewels and a new cars...live fast and die broke.

 

[ex_CFO_now_RVer]

Having been a plan administrator and provider of information to new employees, (both union and non-union) I have heard lots of reasons for not participating in a 401k savings plan.

The best reason was that the employee knew that the Company  "benefits", ie... tax deduction from the match and that he was against corprate welfare".  He did not contribute over the 15 years he was a employee, when he retired, he boasted that he alone knew that the Company benefitted and he did not succumb to the Company plot.

Everyone is different, and that is a good thing!

Dave

 

[Mr._johngalt]

Having been a plan administrator and provider of information to new employees, (both union and non-union) I have heard lots of reasons for not participating in a 401k savings plan.

The best reason was that the employee knew that the Company  "benefits", ie... tax deduction from the match and that he was against corprate welfare".  He did not contribute over the 15 years he was a employee, when he retired, he boasted that he alone knew that the Company benefitted and he did not succumb to the Company plot.

Everyone is different, and that is a good thing!

Dave

I agree that it is good thing everyone is different, but a guy with
those sorts of thoughts in his head has more than one screw loose.
I am pretty surprised he didn't end up in a rubber room with a funny
jacket

JG

 

[runnerr]

Young people or an older worker not saving and buying anything they weren’t really upsets me. I understand that it is not up to me to tell anyone how to live but when it my in turn affects me now I get concerned. I understand that future SS is being discussed in a way that it might be distributed based on how much savings one has. The more you are worth the less you get. So the fact is the non savers get their cake and eat it too. As for who qualifies for the Medicare prescription benefits is another example. There are probably many more out there but you get the picture.

There are many of us who went with out to get in the position to retire early and hopefully not have any future concerns and because of that we might be penalized. I have been called tight, cheap, pinch a Buffalo nickel (when they were plentiful) till the buffalo screams and about everything else that describes frugal. But I am happy I did it. It still isn’t right if the government divvies up on the foundation of your net worth.

 

[Marshac]

I understand that future SS is being discussed in a way that it might be distributed based on how much savings one has.

There was a rep on NPR this morning from the ways and means committee talking about 'fairness' and how it's not 'fair' that someone who works their whole life, and doesn't have much savings should be in poverty during retirement....I was yelling at the radio about how it's not fair that those people are rewarded for spending every penny, while those of who do save will be penalized.... So you and I are on the same page it sounds like

I don't like this talk of means testing.... SS is not welfare. We all pay in the same %, and we should all benefit equally.

 

[playaman]

I agree with Marshac. Social security should not be means tested.

When it comes to income tax, wealthier persons should pay more. One should not be penalized, however, for saving and investing during employment for his/her retirement.

 

[Mountain_Mike]

Many people I talk to say they plan on working 'till they drop dead; that is NOT my cup of tea. They also seem to think they need to spend every penny they have, or even live above their means through credit.

As an example, my wife recently bought something for her school (she was going to get reimbursed for it). Another teacher commented in amazement that she had, "an extra couple hundred bucks laying around" that could be used for this purchase. It is amazing to me how teachers who make $60,000 per year could have such a tight cash-flow situation.

I see work as a means to an end. I had the chance to drop out of Social Security years ago, and I took it. That is when I (modestly) started saving for ER. As the years have gone by, I have increased the amount of savings with each raise. Taking approximatly half, and channeling the other half into tax deferred savings.

Some people seem not to mind working forever...not me. I see ER as buying back my FREEDOM. I hate being a slave to the clock and to others.

 

[Nords]

It is amazing to me how teachers who make $60,000 per year could have such a tight cash-flow situation.

I'm amazed to see a teacher being paid $60K/year.

 

[Ginger]

Ditto.  I have many friends who didn't save a dime and are crying on the phone now about how they will not be able to retire.   It seems the more you save  the more you see the craziness of the government trying to get their hands on that savings account.  The whole system is upside down and the tax laws are burdensome and complicated.  Change is slow coming.   But, God Bless the USA.

 

[cute fuzzy bunny]

When it comes to income tax, wealthier persons should pay more.

Why?

I enjoy how we're a fair and equal society...until we notice that that other guy makes more money, so he should pay more of my share of the government operations.

I'd like it better if we all paid an equal and fair share and the government figured out how to make do with that, rather than taking half of the earnings from the 'rich' and wasting it.

I know when I was at a 50% taxation level, that I would have done a lot more for the economy and the community with that cash than the government did.

I think the automatic "Whaa? Do you want us to further tax the poor and let the rich get a relatively free ride?" is where they stick it to you. No, I dont want that. I want everyone to pay the same. Otherwise, if there is an insistence that someone with a higher income pay more in taxes, then I want a commensurately higher benefit. I want my votes to count more. I want to be able to walk past the line at the DMV and get waited on immediately.

 

[jimhcom]

The problem is our educational system. No one can do the math. In the average tax bracket it only takes 7 dollars take home pay to invest 10 dollars, it's a no brainer. If you ask these people if they would like to buy 10 dollars for 7 dollars they would understand, but make it slightly more complicated and you have lost them. If you take into consideration the compound interest on just the tax free portion over 20-30 years the numbers are staggering. Unfortunatly you can show the un-educated the way but you can't make them understand.

 

[justin]

I want to be able to walk past the line at the DMV and get waited on immediately.

When I recently spent 1.5 hours waiting at the DMV for a new license, I was thinking about how much I'd be willing to pay for "DMV Express", where you get instant service. $20 or $30? Sure. Too bad the DMV doesn't have to compete for our business.

 

[farmerEd]

I'm amazed to see a teacher being paid $60K/year.

Amazed that its that high? or that low? 60K is about the average in my school district, which is very small and fairly poor. 60K for about 1000 hours of work a year is no chump change, especially when you factor in the benefits..

 

[justin]

Amazed that its that high? or that low? 60K is about the average in my school district, which is very small and fairly poor. 60K for about 1000 hours of work a year is no chump change, especially when you factor in the benefits..

Wow! Teachers here earn $28k/yr starting out. Average - maybe $35k/yr for 10 months work.

 

[maddythebeagle]

If they are going to means test for soc. sec., please let me know now so that I can fit around my retirement planning

I think the point has been made that middle class has been given lots of goodies like iras and 401ks for retirement with the idea that soc. security wont be there or at least not the feedbag that it once was.

I wonder why medicare/medicaid isnt being talked about? yet?

 

[riskadverse]

The problem is our educational system. No one can do the math. In the average tax bracket it only takes 7 dollars take home pay to invest 10 dollars, it's a no brainer. If you ask these people if they would like to buy 10 dollars for 7 dollars they would understand, but make it slightly more complicated and you have lost them. If you take into consideration the compound interest on just the tax free portion over 20-30 years the numbers are staggering. Unfortunatly you can show the un-educated the way but you can't make them understand.

I agree it is the educational system - I somehow made it through high school, college, and 25 years of working without knowing the first thing about investing, stocks, bonds, retirement planing, 401K's or anything similar.  The sum total of my financial education was doing a tax return in the 11th grade - (and I still do my own today).  Luckly I had been frugal and when I finally realized that I was going to have to retire at some point, I had saved enough to use in my own self taught education of how to invest. (and luckly I didn't lose it all paying my dues in the beginning) 

 

[mangodance]

Another teacher commented in amazement that she had, "an extra couple hundred bucks laying around" that could be used for this purchase. It is amazing to me how teachers who make $60,000 per year could have such a tight cash-flow situation.

WOW! $60,000 teachers? In KY, I live in the highest paid teacher county, but new teachers make $26,000 or $28,000 and get no educational benefits even though there is heavy pressure to get advanced degrees.

 

[Sillysal]

I am wondering how the author of that article expects those of us under 30 to have huge balances when we are just starting out. We are making entry level salaries and have not had a lot of TVM yet. Give us a break. My company only lets me invest up to 15% of my salary, which will not bring me near the maximum dollar amount.

 

[maddythebeagle]

even 50 per payperiod in an index fund or as sally struthers used to say "for just the cost of a cup of coffee every day".