Knowledge vs. Action: The Disconnect

Knowledge and action are not always aligned, and a new study demonstrates such a misalignment for retirement savers. According to the study, Americans are generally behind in terms of retirement readiness, particularly falling short in figuring out how to save.

The study divided retirement preparation into three categories: sufficient knowledge and awareness of how to prepare (“knowing”); accurate and comprehensive planning activity (“planning”); and adequate savings to generate sufficient income replacement (“having”). For two groups, employees and retirees, the study asked a series of questions designed to assess all three categories, then scored the answers from zero to 10.

The big picture:

Employees
Employees received an average score of 5.8 out of 10 for the first category, knowing how to save. For the planning category, their average score was 3.0, and 3.5 for having adequate savings. Their overall average was 4.1.

Retirees
Retirees scored better, with a score of 7.0 out of 10 for knowing how to save, 4.2 for planning, and 5.3 for having enough savings. On average, the overall score for retirees was 5.5.

Confidence and concerns:

Employees
The study found that 65% of employees report they are at least somewhat confident in their ability to live securely throughout their retirement. Yet 59% of them reported a high level of concern about outliving their retirement savings.

Retirees
Among retirees, 82% are at least somewhat confident in their ability to live securely throughout retirement. However, 65% said they expect to live more than 20 years in retirement, even while 40% don’t believe their savings would last beyond 20 years.

What They Know
It appears from the study that increased emphasis on educating employees about financial activities that can lead to retirement security is working. When asked about the importance of a few of the following actions, significant numbers of employees reported they are extremely or very important:

• Start saving as soon as you possibly can – 92%
• Create a holistic financial plan – 87%
• Determine the amount of future monthly income your current savings would produce – 85%
• Take advantage of financial advice from your own financial professional – 69%
• Take advantage of financial advice at the workplace – 63%

What They Do
The disconnect between knowledge and action is apparent, though, when employees who participated in the study were asked whether or not they had actually taken these financial planning steps:

• 31% said they have a written budget
• 36% have used a Web-based retirement calculator
• 17% have a formal, written financial plan

Role Models Who Know and Do
The study identified a subset of employees and retirees who could be considered role models, because of their proactive status relative to retirement preparation. They scored highest on the study’s index because of the following key findings, among others.

• Nearly two-thirds (65%) of the employees had a written budget, and almost half (45%) had a formal written financial plan
• More than two-thirds of the retirees (68%) had a financial plan and 81% had a relationship with a financial professional
• 82% of employees and 78% of retirees had a specific strategy for investing their assets
• An overwhelming majority—97%—of the retirees in this group reported they are happy with their financial security, and 81% said they retired because they wanted to
• Among employees in this role model category, 96% said they are somewhat or very confident in how well they are prepared for retirement

For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.

Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com

© 2015 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance; nor as the sole authority on any regulation, law or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.