High personal debt is affecting employees’ ability to save for retirement, according to a study by Fidelity Investments.
The study found that one-third of American workers in the nonprofit sector added to their workplace savings plans last year. While 57% of tax-exempt employees contributed to a retirement fund, 44% also possess more than $5,000 in personal debt, excluding debt from mortgages.
As part of the study, participants were asked to classify themselves as a saver, a spender or an investor. Those who considered themselves savers (46%) and spenders (45%) tended to have greater personal debt and less involvement in financially preparing for retirement than the mere 9% that categorized themselves as investors. Four in 10 investors contributed more to their plan in 2007 than in 2006, as compared to one in three savers and one-quarter of spenders.
While one in three workers contributing to a savings plan is still good news, the study proved that not enough are fully utilizing the saving resources available in the workplace. Fidelity found that only 57% interacted with their defined contribution (DC) plan provider in 2007. Most of the participants that did contact their DC plan provider were from the “investors” category at 77% compared to 58% of savers and 51% of spenders. Investors were also more knowledgeable regarding their retirement savings accounts. Nearly eight out of 10 know how much they need to save annually to reach their retirement goal compared to almost four in 10 spenders and six in 10 savers.
The firm’s executive vice-president John Begley says savers and spenders will need to start acting like investors in order to ensure a comfortable retirement. “Given the shift in retiree benefits and the rising costs of healthcare, employees can’t afford to delay taking action to plan, save and invest for their financial future,” he says. “Working in retirement should be a decision based on choice rather than necessity.”
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