Volume 16, Issue 1
57
start saving for retirement, the more you must save. The mean increases from 14.38% to 21.04% as the starting retirement age shifts from 25 to 35 years of age. These answers were collected in free form, without multiple choices.5 Overall, hypothetical savings behavior points to the fact that most people are aware of how much they should save and are willing to save a significant amount that would certainly put them on the right path to retirement, if implemented.
should save for retirement, but in reality they are saving less. Another concern is retirement participation where 12% of the respondents who work full time and have access to retirement plans at their place of employment do not currently participate in the plan. This trend will be analyzed further in the multivariate analysis. Table 3 presents the answers for the knowledge part of the survey. One of the most surprising answers is the respondents’ lack of knowledge about the maximum allowed IRS limit for tax-deferred contributions. Only 28.5% of the participants were able to identify the correct limit, with 62.5% admitting that they do not know. Given the relatively high income of those in the sample and the advantage of tax deferrals, one would expect this population to seek ways to minimize taxes and be aware of the yearly limit. Additionally, only 22% of the respondents knew the exact employer match for their respective pension plan [401(k) or 403(b)]. Many of the participants mentioned that their university employer offers a match/guarantee (depending on the hire date) but they do not know how much it is
The second part of Table 2, Panel B, focuses on actual savings rather than expected savings. We find that 73% of the respondents are currently saving consistently. Eliminating the 18% of the sample representing graduate students (who are mostly PhD students on low assistantships) shows that approximately 10% of the working respondents do not save at this time. Furthermore, the mean savings rate is under 5% of salary. This points to an apparent disconnect between intention and implementation. At least hypothetically, respondents seem to be aware about how much one 5.
Depending on the source, financial planners advise saving between 10 and 15% starting at age 25.
Table 2A: Savings Expectations The table presents hypothetical savings behavior. Columns 2−5 represents the percentage chosen to be saved in a defined contribution savings plan when (1) the employee salary is $50,000 and the employer is not offering a match, (2) the employee salary is $50,000 and the employer is offering a dollar for dollar match up to 4% of the salary, (3) the employee salary is $50,000 and the employer is offering a $0.25 per dollar match up to 4% of the salary, and (4) the employee salary is $100,000 and the employer is not offering a match. Columns 6 and 7 represent the percentage of salary that should be saved if an employee starts retirement savings at the ages of 25 and 35 respectively. Variable
50K No Match
Mean 11.12 Median 10 SD 8.46 N 294 Min 0 Max 60 Note: * Eliminated 3 answers of 100%.
50K $1/$1* 10.17 8 8.22 295 0 60
50K $0.25/$1
100K No Match
11.45 10 9.27 285 0 75
15.07 13 9.05 271 0 60
Savings 25
Savings 35
14.38 10 9.26 299 2 68
21.04 20 11.09 297 4 75
Table 2B: Actual Savings Behavior The table presents actual savings behavior. Column 2 represents the percentage of employee consistently savings now, column 3, the percent of the salary saved at this point, column 4, identifies the percentage of respondents currently participating in a retirement plan and column 5, the percentage of respondents that have ever participated in a retirement plan.
Variable Mean Median SD N Min Max
Percent Consistently Saving 73.04 – 297 – –
Percent of Salary Saved <5% 5−10 – 300 – –
Percent Current Retirement Participation 69.96
Percent Ever Retirement Participation 62.80
–
–
– 294 – –
– 293 – –