Reality Sinks in for 401(k) Investors — and Providers

It’s taken a few years, but Americans are finally giving up on the dream of an early retirement. A new poll by the Gallup organization found that for the first time more Americans say they will work longer than age 65, rather than call it quits in their 50s or early 60s.

The change is dramatic. More than a third of those surveyed said they would retire after 65, compared with just 12% in 1995, which was the first year Gallup began asking that question. Some 29% still intend to retire before age 65, but that percentage has dwindled from a high of 50% in 1996. Another 27% said they would retire at age 65.

Clearly, the financial setbacks from the market crash and recession are forcing Americans to realize they need to work longer.

Also playing a role: the higher age limit for claiming full Social Security benefits — at least 66 for those born between 1943 and 1954, rising to 67 for those born in 1960 or later. Still, as another Gallup poll found, more Americans are counting on Social Security as their main source of income than before — some 34% vs. 27% in 2007.

Given the modest level of income that Social Security provides, however, the majority of workers continue to rely on their employer plans for retirement security. Some 45% of those surveyed expect their 401(k) plan or IRAs to be their biggest source of income when they call it a career — but that's down from 52% in 2007.

As critics have long pointed out, 401(k) plans, whose returns depend largely on the whims of the stock market, need major reforms to make them effective for retirement savings. That’s something even 401(k) providers are beginning to acknowledge. A newly released study by Wells Fargo found that employers have been slow to take full responsibility in helping their workers achieve a financial secure retirement.

Only 45% of employers surveyed by Wells Fargo said that the “primary” goal of offering a retirement plan is to “provide employees with the means to achieve a financially sound retirement.” Instead, the majority (51%) say the main reason for offering the plan is “provide competitive benefits to attract and retain employees.”

When asked about "the greatest challenge and concern” facing their plans, only 19% of employers answered “providing employees with the financial ability to retire.” By contrast, some 26% cited market volatility's effect on account balances.

The people at Wells Fargo see retirement as a shared responsibility between individuals, employers and the government. And they think that all parties can do more to ensure its success.

“Many employers don’t see it as their responsibility to make sure their workers are on track to a secure retirement,” said Laurie Nordquist, director of Wells Fargo Institutional Retirement and Trust, in a recent interview. “And many also are concerned about legal gray areas in what they can offer in terms of advice and guidance.”

Nordquist, along with fellow Wells Fargo director Joe Ready, say that Washington could make a few key reforms that would motivate employers to improve their plans. Among them: offering clear rules permitting advice in 401(k) plans (proposals for permitting advice have been bottled up in Washington), encouraging guaranteed income options at retirement, and providing a tax break for employers on matching contributions.

Are you planning to retire later than age 65? And what changes in your 401(k) might help you retire sooner? Let us know in the comments section below.

Follow Money on Twitter at http://twitter.com/money.