Lacking a Degree Can Hurt Retirement

BOSTON (TheStreet) -- People without college degrees don't just suffer in the work force, but in retirement as well.

That's no surprise. But the extent of the difference was, even to the directors of a recent study on the matter.

"When we looked at level of education, I knew that we would find something, but I didn't know how dramatic it was going to be. I didn't expect it to be so profound," says Catherine Collinson, president of the Transamerica Center for Retirement Studies.

A large portion of society -- those lacking high levels of education -- might have to keep working instead of retiring, according to a study by the Transamerica Center for Retirement Studies.

"There is a large portion of our society at risk that haven't been made visible yet," Collinson says.

The center's study found "considerable differences in American workers' retirement preparedness based on their level of education."

Its research was culled from the 11th Annual Transamerica Retirement Survey, conducted among nearly 3,600 American workers. The center is a nonprofit, private foundation funded by Transamerica Life Insurance.

Workers with only a high school diploma are significantly less likely to have access to a company-sponsored 401(k) or similar plan compared with those with a college degree, the study says. Just 60% of workers who have only a high school diploma report being offered a 401(k) or similar plan by their employer, compared with 71% of workers with some college education, 78% of workers with a college degree and 83% who have had postgraduate education.

Of those workers who do have access to a 401(k) or similar plan, workers with only a high school diploma had a lower participation rate (63%) versus those with a college degree (84%) or postgraduate education (87%).

Workers with only a high school education are significantly more likely to have "guessed" their retirement savings needs compared with those with college or postgrad degrees, Transamerica says. While most workers agree they could work until age 65 and not save enough to meet retirement needs, three-quarters of high school graduates with no college education agree with this sentiment compared with just over 60% of college graduates.

"It is really scary to think there are so many workers that plan to work past age 70, or not retire at all, because it is all predicated on the assumption that they are able to work, that they don't find themselves forced out of an employment situation with a family or personal illness, which is unfortunately more likely to increase with age," Collinson says. "If you run out of money, at 80 it is going to be really difficult to find a job.

More than one-third of workers with only a high school diploma expect to rely on Social Security for their primary source of income in retirement. More than half of those with a college degree expect their 401(k), 403(b) and IRAs to be a primary source of income.

According to the survey, most workers, regardless of education, agree that they do not know as much as they should about retirement investing. Just 13% of those with only a high school education say they know "quite a bit" or "a great deal" about asset allocation principles, compared with 20% with some college, 31% with college degrees and 50% of those who have pursued a postgraduate education.

Collinson says there are several ideas that could help the nondegreed be better prepared for retirement. In the survey, 43% of respondents said larger tax breaks and incentives for saving would motivate. Additionally, 35% said they want educational materials that are easier to understand.

She says that improving financial literacy education, and starting such lessons at a younger age, is important.

"What the research really cries for is financial literacy education at the starting end of junior high, so that by the time people graduate from high school -- even if they don't go to college -- they have an understanding of not only the basic principles, but how to take charge of their financial futures," Collinson says.

Better outreach around available tax incentives, regulatory reform and new legislation intended to expand retirement plan coverage should also be considered, the study says.

-- Written by Joe Mont in Boston.

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