WASHINGTON, D.C. – Waiters, hotel clerks and most anyone else working in the leisure or hospitality sector are saving at some of the lowest rates for retirement, as are millennials on the whole.
Those are some of the sharp distinctions contained in an ADP Research Institute study that examined the retirement savings rates of approximately 9 million full-time U.S. employees with incomes of $20,000 and above in 2013. The study found that 60.2 percent of the workers saved for retirement at an average salary deferral rate of 6.7 percent. It also found women saved at a higher rate than men, and workers save more as they approach retirement.
Retirement studies generally rely on what employees say they are doing about their retirement savings, but ADP looked at what employees are actually doing based on payroll data. One out of six – or 24 million – U.S. employees get their paycheck via ADP.
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“We not optimized, retirement savings are not optimized. We know the issue is being debated like never before,” Chris Augelli, vice president of product marketing and business development at ADP Retirement Services, said in presenting the finding on the closing day of the 2014 Society of Professional Asset-Managers and Record Keepers meeting.
ADP’s research, he said, underscores “lots of opportunities for improvement. … It’s meant to be a diagnostic tool, informing the conversations that we’re having.”
In identifying which sectors are seeing the best and worst savings rates, ADP’s research could help the retirement industry clearly see who it might be able to help most. Voicing an all-too-familiar concern, it said that workers often are either not participating or are saving too little, too late.
In crunching the numbers, ADP excluded employer contributions. It looked at employee contributions to 401(k), 403(b), traditional and Roth IRAs and other retirement accounts.
“Our research shows the gaps that the transition from (defined benefit to defined contribution) has created in the system,” Augelli said.
It also showed that 48 percent of younger Americans (those ages 20-29) are saving an average of 4.9 percent of their annual salary, while 64 percent of those ages 61-69 are saving at an average of 9.2 percent.
“Employees appear to wake up as retirement nears,” Augelli said. “They’re trying to catch up and they run that race up until the last possible moment.”
“That’s a very difficult” thing to overcome, he added.
For some, career choice may make it impossible.
ADP said its research found that 76 percent of those in the typically better-paying information sector were saving an average of 7 percent of their salaries while just 37 percent of those in the low-pay leisure/hospitality business were saving – at a lower rate of 6.3 percent.
“Some of this might be intuitive, but it’s still very challenging,” Augelli said. “There are entire sectors of the economy that are being left behind.”
Even those saving at higher levels may be left without enough money at retirement.
Dallas Salisbury, CEO of the Employee Benefit Research Institute, said recently his rule of thumb is people should save 15 percent of their income for 40 years. ADP’s research also found that:
- 74 percent of women are saving at a 7 percent rate vs. 66 of men at 6.4 percent.
- While a higher share of employees who work for larger companies saved, they tended to save at lower rates (6.7 percent) than employees who work for smaller firms (7.5 percent).
ADP, Augelli said, isn’t certain but believes that may be because employees of larger firms are increasingly auto-enrolling in their workplace retirement plans but are not adjusting their savings rates in subsequent years.
“Too often, auto-enroll isn’t paired with auto-escalation,” he said.