By Christine Fahlund on January 7, 2013

Despite the crosscurrents of volatile global financial markets, a struggling U.S. economy, and continued uncertainty in Washington, investors remain focused on saving for retirement, a new T. Rowe Price survey suggests. In the wake of the financial crisis, however, many have a reduced appetite for risk.

Among investors age 21 to 50, 72% say that saving for retirement is their top financial goal. At the same time, these investors also are focused on maintaining or improving their current lifestyles (50%), creating or adding to an emergency fund (36%), paying off debt such as credit cards (34%), and saving for their children's college expenses (27%).

Competing financial priorities present a stark challenge for investors, especially during hard economic times. But we are encouraged that relatively younger investors have their priorities straight. Retirement savings must come first for younger investors. This survey shows that they recognize the importance of saving for retirement. Saving early in one's adulthood increases the compounding of earnings over a decades-long period. That can significantly improve the chances that younger investors will be prepared financially when they want to retire or are forced to do so. Trying to make up later on for contributions to be made and investments to compound can be very difficult.

Not Saving Enough

Although investors give priority to retirement saving, the survey indicates that most people are not saving enough. Based on the firm's earlier research, T. Rowe Price financial planners recommend that investors strive to save at least 15% of their annual income, including any employer contributions to a workplace retirement plan such as a 401(k), in order to have a reasonable possibility of living comfortably in retirement.

By contrast, the survey reveals that about two-thirds of investors with access to a 401(k) are contributing 10% or less of their salaries to their plan.

When asked what percentage of their salaries they would ideally save for retirement each year, a significant number (42%) said less than the 15% benchmark. Just as troubling, a little less than one-third of survey respondents are not sure how much they are currently contributing to their retirement plan.

It's good that most people are saving, but the survey underscores that most young investors are simply unaware or are undersaving each year. They need to gradually boost their retirement savings amount, and many need to become more fully engaged in the saving process—the sooner the better.

Postcrisis Investor Sentiment

The survey also examined how the 2008 financial crisis and stock market meltdown affected individuals' attitudes toward investing. About half claim to have about the same tolerance for investment risk as they had before the crisis, 30% say they have a lower tolerance for risk, and 19% report a higher tolerance.

Interest in investing in stocks, long a staple of retirement investing, appears to have taken a hit. While 61% of investors surveyed still consider equity investing important for retirement success, many (37%) are refraining from investing in stocks. Among the key factors cited: the slow pace of the U.S. economic recovery, general market volatility, political uncertainty, and rising health care costs.

Among fixed income investors, about three-quarters are only somewhat or not at all willing to take on more risk to obtain a potentially higher yield.

While the financial crisis may have made many investors more risk averse, about half say that their current investment portfolio is allocated about the same as it was before the crisis, while 31% say that they are investing more conservatively, and 16% report investing less conservatively.

Aside from investment strategy, the crisis appears to have ushered in a new era of financial prudence. About 45% of investors report that they are saving more now than they were before the crisis, while only 19% say they are saving less.

For those who have abandoned or significantly reduced their equity allocation, over the long term, the stock market has historically provided superior returns relative to other asset classes. Younger investors in particular have an important ally on their side—time.

However fresh the crisis might linger in their minds, they would be well served to remember that because they are investing for decades, they should actually be taking advantage of down markets by increasing their equity exposure when stock prices appear attractive.

Other Concerns

Among investors planning for retirement, their primary concern, cited by three-quarters of them, is health care costs, followed by rising taxes, Social Security availability, and inflation. (See chart below.) The possibility of outliving one's retirement savings was also cited by about half.

Investors' Key Retirement Planning Concerns: Percentage Citing These Factors

*Based on a survey of 850 respondents between ages 21 and 50 who have at least 1 investment account, surveyed online in August 2012. Source: Harris Interactive for T. Rowe Price.

Interestingly, only 16% of the investors believe they will receive full Social Security benefits as the program is currently structured. The remaining 84% of investors expect to receive either reduced benefits (48%) or no benefits at all (36%). This group says they plan to save more and work longer as a result.

The lack of confidence that many investors have in the viability of Social Security funding for future generations is especially troubling because Social Security has been an important leg of the retirement stool for decades, along with savings and, until recently, pensions.

Hopefully, their concern that they may have to rely solely on their investments in retirement becomes another motivating force that encourages them to save as much as they can. Many aspects of their financial future are unknown, so investors need to focus on what they can control, which is the amount they save on a monthly basis.

Whatever financial winds are swirling around them, investors who take charge of their retirement savings programs and keep their eye on the ball will most likely be the ones who enjoy the kind of retirement we all aspire to have.