Fidelity® Study shows that most Americans are flying solo when saving for retirement
May 20, 2014 08:30 AM Eastern Daylight Time- BOSTON–(BUSINESS WIRE)–Fidelity Investments® − America’s No. 1 provider of 401(k) plans and Individual Retirement Accounts (IRA)1 − today released analysis that shows which cities and its citizens are saving the most – or least – in their workplace retirement accounts, and which are more prone to having an outstanding 401(k) loan.
In the study of 13 million 401(k) investors across metropolitan regions2, San Jose3, CA and San Francisco4, CA stood out as the cities with the highest average Total Savings Rate5. The typical US worker in these areas stash about 14.6 percent of their annual salary away in 401(k)s – which includes both employee and employer contributions. Raleigh6, NC was a close third with 14.0 percent, and Houston7, TX and Hartford8, CT rounded out the list of top savers with 13.9 percent and 13.8 percent, respectively.
In addition to highest average Total Savings Rate, San Jose edged out San Francisco with the highest average Employee Contribution Rate of 11.1 percent compared to San Fran’s average of 10.4 percent. Honolulu, Boston9, and Bridgeport10, CT also made the cut with 9.0 percent each.
To further emphasize their position as cities with diligent retirement savers, San Jose and San Francisco were also metropolises with some of the lowest rates of outstanding 401(k) loans. Only 11.1 percent of workers in San Jose and 13.4 percent of San Franciscans have a loan balance. Madison, WI had the lowest outstanding 401(k) loan rate at only 10.0 percent.
“The good news is that Americans nationwide are saving for retirement,” said Jim MacDonald, president of Workplace Investing at Fidelity Investments. “These cities lead the way with some of the most robust 401(k) savers in the country. High savings rates and low proportions of outstanding 401(k) loans indicate that these US workers are on the right path.”
Cities with Highest Rate of Outstanding 401(k) Loans
McAllen11, TX had the highest 401(k) loan usage, with 33.0 percent of retirement savers having an outstanding loan balance. Riverside12, CA and Bakersfield, CA were close behind with 32.0 percent and 31.3 percent, respectively. El Paso, TX followed with 30.7 percent and Youngstown13, OH had 29.9 percent.
Employers also Important in Employees’ Retirement Savings
Richmond, VA is home to companies with the highest average employer contribution rate of 5.8 percent. Columbus, OH follows with 5.7 percent and Little Rock14, AR with 5.6 percent.
In contrast, although San Jose has the highest average employee contribution rate, it also has the lowest average employer contribution, only 3.5 percent. Stockton, CA, Madison, WI, Chattanooga, TN, and Fresno, CA all tie for second lowest with 3.6 percent.
In addition to robust employer contribution rates, enhanced plan design offerings – including auto enrollment and Qualified Default Investment Alternatives (QDIA) – provide Americans with more options to prepare them for a healthy retirement. For employers, designing their plans to meet the unique needs of all employees is an important step in helping them save and invest adequately.
“The data show that Millennials15 especially reap the benefits of 401(k) plan design features, such as auto enrollment and investment defaults,” said MacDonald. “This is important because Millennials will be the first generation to shoulder the responsibility of funding the majority of their retirement on their own.”
Majority of US Workers Flying Solo When Saving for Retirement
Further metropolitan analysis reveals that although Americans in U.S. cities are deferring an average of 12 percent or more16 of their paycheck in their 401(k)s, many individuals are managing their own investments and not benefiting from professional management and financial guidance available to them through their employers, providers, and advisors. As a result, their retirement nest eggs may not be able to grow to their full potential, possibly putting their retirement readiness in jeopardy.
The majority (63 percent) of Fidelity’s 401(k) investors are taking a “Do it Yourself” approach to 401(k) investing, which means that they are assuming responsibility for their own investment decisions. In contrast, only 37 percent are taking a “Do it for Me” approach and using professional management, such as a target date fund or workplace managed account.
Most concerning, however, is that 54 percent of Americans who are taking a “Do it Yourself” approach are considered “unengaged” in that they have not made a fund exchange, updated how their contributions are invested, or sought guidance in at least two years. In contrast, Fidelity recommends that “Do it Yourself” 401(k) investors seek help at least once a year to ensure that they are making the adjustments necessary to keep their workplace retirement savings on track.
“If 401(k) assets are not managed either by the individual or a professional, the account may be taking on too much or too little risk,” said MacDonald. “And with market fluctuations over time, it may leave the individual short-changed by the time they are ready to retire.”
Retirement Education Available through Fidelity’s Plan for Life
Guidance is available as part of Fidelity’s Plan for Life – it’s educational guidance experience – to help employees nationwide using dedicated phone representatives, online tools, webinars, videos, and at Fidelity’s more than 180 investor centers nationwide.
About Fidelity Investments
Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of $4.7 trillion, including managed assets of $1.9 trillion, as of April 30, 2014. Founded in 1946, the firm is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and many other financial products and services to more than 20 million individuals and institutions, as well as through 5,000 financial intermediary firms. For more information about Fidelity Investments, visit www.fidelity.com.
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Diversification does not ensure a profit or protect against a loss.
Fidelity “401(k) Geographic Trends” results as of April 31, 2014.
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Fidelity Investments Institutional Services Company, Inc.
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1 Pensions & Investments, March 3, 2014, “The largest DC record keepers” and Cerulli Associates’ The Cerulli Edge®—Retirement Edition, fourth quarter, 2013 based on an industry survey of firms reporting total IRA assets administered for Q3 2013.
2 Metropolitan Statistical Areas (MSAs) as identified by the 2013 Census Estimate.
3 San Jose-Sunnyvale-Santa Clara, CA
4 San Francisco-Oakland-Fremont, CA
5 Includes both employer and employee contributions.
6 Raleigh-Cary, NC
7 Houston-Sugar Land-Baytown, TX
8 Hartford-West Hartford-East Hartford, CT
9 Boston-Cambridge-Quincy, MA
10 Bridgeport-Stamford-Norwalk, CT
11 McAllen-Edinburg-Mission, TX
12 Riverside-San Bernardino-Ontario, CA
13 Youngstown-Warren-Boardman, OH-PA
14 Little Rock-North-Little Rock-Conway, AR
15 Participants born between 1979 – 1991
16 Including both employer and employee contributions.