According to industry expert Larry Zimpleman, president of Retirement & Investor Services at the Principal Financial Group®, much of the former research on this subject reports that most Americans believe Social Security will replace all or most of the income they need to live in retirement, while new data from The Principal Financial Well-Being Index paints a picture of a more knowledgeable set of American workers today. The vast majority of respondents (77%) said they expect Social Security to provide about 50 percent or less of their income replacement in retirement, which Zimpleman validates as being on target. At the same time the public debate continues to rage over Social Security, the Index reveals growing satisfaction by workers for their employer-sponsored benefits, particularly health insurance and retirement plans, than in past quarters -- showing a possible connection between Americans’ growing concern over the future of Social Security and their own long-term financial futures.
“These findings are a healthy sign that the message is finally getting through to American workers that Social Security was never meant to be the sole source of retirement funding, rather a supplement to personal savings and employer-sponsored benefits,” Zimpleman said. “At the same time, the Index provides evidence of Americans’ growing satisfaction with their employee benefits while they are increasingly concerned about the long term amid rising benefit costs, especially health insurance. When you put the whole puzzle together, it looks like this: employers are clamping down on growing benefit costs; workers are getting the message that these benefits are extremely important to their future, yet not an entitlement; and growing concern about the future is causing Americans to pay more attention to these issues as a whole.”
Respondents appear to be anxious about their long-term financial futures, with three in four (75%) who agreed they are “very concerned” about their long-term financial future, while just over one in four (27%) agreed they are “extremely happy” about their current financial well-being--down from 34 percent from a year ago (first quarter of 2004). With the backdrop of concern over the long haul, half of respondents (49%) are either “extremely or very concerned” about the future of Social Security, while an additional 22 percent are “concerned,” and 24 percent are “somewhat concerned.”
Employees, particularly younger ones, recognize that Social Security will not contribute a significant percentage of their future retirement income. Among all workers, 77 percent said they expect 50 percent or less of their retirement income to come from Social Security. Significantly more workers age 18-34 (65%) expect 25 percent or less of their retirement income to come from Social Security. Just over a third of workers aged 55 and older (36%) expect 25 percent or less of their retirement income to come from Social Security. Of the oldest segment, only one-third (34%) expect more than half of their retirement income to come from Social Security, and just eleven percent of the oldest segment expect more than 75 percent of their retirement income to come from Social Security.
Many Are Planning to Work Longer or Work In Retirement
“As the debate on Capitol Hill evolves over maintaining the solvency of Social Security, it appears Americans have already acquiesced to working longer or working some in retirement,” Zimpleman said. To fully fund retirement with workers expecting less of the pie to come from Social Security, more than a third (36%) say they will work longer before retiring, and (32%) said they plan to phase into retirement by working part-time. A promising result, significantly more young workers (ages 18-34 and 35-44) said they would start saving more money now for retirement compared to those over age 45 -- "a very good thing,” says Zimpleman, “that younger workers are hearing the message to start now.”
Managing Social Security “Personal” Accounts Won’t Come Easy
The vast majority of workers (89%) are aware of legislative proposals to reform Social Security with private retirement accounts. Workers were asked to rate their comfort level with the idea of managing their own Social Security personal retirement account. About half (49%) said they were not comfortable with managing their own personal accounts, a sign, Zimpleman says, that Americans today rely heavily on “do-it-for-me” investment services and advice.
With the backdrop of Social Security reform, workers are concerned about their long-term financial security today. Sixty percent of respondents say long-term financial security is a top personal concern, followed by 31 percent of employees citing the ability to cover day-to-day expenses as a top personal concern. Significantly more females (36%) than males (26%) said their biggest personal concerns include the ability to cover day-to-day expenses.
Decline in Availability of Benefits, Yet Increasing Satisfaction
The index reveals over the past three years and in the current quarter that employers have increasingly cut back on employee benefit costs--likely to offset the dramatic increases in medical costs, Zimpleman said. Yet the good news is that there has been a corresponding increase in employee satisfaction for benefits provided through the workplace, and greater understanding of their critical importance to the long-term equation. The study showed declines in the availability of health insurance (89 percent said their employer offers health insurance today, down from 94% in 2002), defined contribution plans (64%, down from 74% over the same period), life insurance (63%, down from 74%), and disability insurance (47%, down from 55%). Even free parking has declined (56%, down from 63% three years ago).
“It’s no secret that employers are increasingly forced to make difficult choices in this environment. But what is very noteworthy is the fact that Americans no longer appear to expect the benefits as an entitlement, they are increasingly satisfied with employer-sponsored benefit plans and they better understand the critical relationship between employee benefits and their long-term financial health,” Zimpleman said.
In terms of benefit satisfaction, workers (with benefits) were notably more satisfied this quarter with all their core benefits, including health insurance, defined contribution, defined benefit, life insurance and profit sharing plans. They are most satisfied with their profit sharing plan (55%), defined benefit plan (52%), defined contribution plan (48%), life insurance (48%), and health insurance (40%, up from 35% in 2004). Health insurance is the main benefit they want their employers to improve, with 43% of respondents looking for some type of change to their health plan. But at the same time, fewer workers said their employer increased their portion of medical co-pays and deductibles this quarter, which may correspond to their increase in satisfaction.
Following health insurance as the most important benefit, defined contribution and defined benefit plans were the next leading benefits in importance-perhaps further evidence that Americans have tuned into the looming Social Security crisis, Zimpleman said.
The Domestic Agenda’s Impact on Pocketbooks
Finally, workers were asked to weigh in on current domestic initiatives being addressed by the current administration, and their possible impact on the pocketbook. Workers said the initiatives most impacting their financial well-being are Social Security reform (41%), reforming the tax code (32%) and cutting the national deficit (27%). Respondents clearly see a connection between the national debt and their long-term financial health. An overwhelming 73 percent said they “strongly” or “somewhat agreed” that the national debt has or will have a direct negative impact on their personal financial security.
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Methodology: The Principal Financial Group, the nation’s 401(k) leader, commissioned Harris Interactive® to conduct an online study of 1,101 employees (ages 18+) of small and mid-sized U.S. businesses (firm size 10 – 1,000) between Feb. 10-21, 2005, about their attitudes and perceptions regarding their financial well being and their current employee benefits. Data were weighted to be representative of the entire population of adult employees working for small to mid-sized U.S. businesses. Propensity score weighting was used to adjust for respondents’ propensity to be online. In theory, with a probability sample of this size, one can say with 95% certainty that the results have a statistical precision of ± 3 percentage points for the overall sample. This online sample was not a probability sample. This is one in a series of quarterly studies to identify and track changes in the workplace of small and mid-sized (growing) businesses. The first Principal Financial Well-Being IndexSM survey was conducted in the United States in 2000. In 2002, The Principal also began to conduct a Global Financial Well Being Index.
About the Principal Financial Group
The Principal Financial GroupÒ(The Principal ®)[1] is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance and banking through its diverse family of financial services companies. A member of the Fortune 500, the Principal Financial Group has $168.7 billion in assets under management[2]and serves some 14.9 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
About Harris Interactive®
Harris Interactive Inc. (www.harrisinteractive.com), the 15th largest and fastest-growing market research firm in the world, is a Rochester, N.Y.-based global research company that blends premier strategic consulting with innovative and efficient methods of investigation, analysis and application. Known for The Harris Poll® and for pioneering Internet-based research methods, Harris Interactive conducts proprietary and public research to help its clients achieve clear, material and enduring results.
Harris Interactive combines its intellectual capital, databases and technology to advance market leadership through U.S. offices and wholly owned subsidiaries: London-based HI Europe (www.hieurope.com), Paris-based Novatris (www.novatris.com), Tokyo-based Harris Interactive Japan, through newly acquired WirthlinWorldwide, a Reston, Virginia-based research and consultancy firm ranked 25th largest in the world, and through an independent global network of affiliate market research companies. EOE M/F/D/V