New research from Schwab Retirement Plan Services finds that
although 401(k) participants believe they need $1.7 million, on
average, to retire, many are not investing enough to reach that
goal. The nationwide survey of 1,000 401(k) plan participants also
reveals the outsized role of the 401(k) in Americans’ financial
lives, with most (58%) saying it is their only or largest source of
retirement savings.
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Steve Anderson, Executive Vice President
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Moreover, two-thirds (65%) of those surveyed say participating
in a 401(k) plan was their first experience with investing – yet
when it comes to using a 401(k), 64 percent view themselves as
savers rather than investors. In fact, the survey shows that
outside of a 401(k), participants are more likely to use a savings
account to prepare for retirement than any type of investment
account.
“The people we surveyed have a realistic target for retirement,
but many likely aren’t on track to get where they want to go. It’s
important for anyone with a 401(k) plan to understand that they’re
already an investor, whether they realize it or not,” said Steve
Anderson, president, Schwab Retirement Plan Services. “Shifting
your mindset from ‘saving for retirement’ towards ‘investing for
retirement’ can help you to better understand that you are
participating in the market when you contribute to a 401(k), and
ultimately better help you reach your goals.”
Missed Investment Opportunities
While everyone’s path to retirement is different, investing a
sufficient percentage of your salary early on is key to growing a
nest egg. Half of those surveyed (51%) are contributing 10 percent
or less of their salary to their 401(k), with the average annual
contribution totaling $8,788. This is a good start but may not be
enough, especially if you start investing for retirement later in
life. To put this in perspective, Schwab has determined that if you
start in your 20s, you will likely be able to retire comfortably by
investing 10 to 15 percent of your salary each year. But if you
don’t start until age 45 or older, you might need to invest as
much as 35 percent of your salary annually, which would be a
significant challenge for most workers.
Many of those surveyed seem to be taking a “set it and forget
it” approach to their 401(k), with less than half saying they have
increased their contribution percentage in the past two years. And
when asked how they decided how much to contribute to their plan
initially, 55 percent say they chose a percentage they were
comfortable with, 36 percent contributed as much as their employer
matched and 8 percent were automatically enrolled at a default
percentage chosen by their employer. Among those surveyed who were
auto-enrolled into their 401(k) plan, 33 percent have never
increased their contribution rate and 44 percent have never changed
their investment choices.
“Any effort to set aside money for the future is worthwhile.
That said, money intended for retirement has far more growth
potential if it’s invested through an IRA or Health Savings
Account, for example, than if it’s placed in a regular savings
account,” added Catherine Golladay, chief operating officer at
Schwab Retirement Plan Services. “Having access to more investment
education could help participants get more out of their
investments, both inside and beyond their 401(k) accounts.”
Opportunities for Education
With workplace retirement plans playing such a vital role in
Americans’ financial preparations, employers have an opportunity to
offer tools and resources to foster workers’ financial wellbeing,
including access to advice and managed account services.
Nearly all of those surveyed (95%) acknowledge they would feel
confident in making the right financial decisions with professional
help, yet just half of participants (52%) feel their situation
actually warrants financial advice. Survey participants named some
of the specific areas where they would like help, including:
- Determining at what age they can afford
to retire (41%);
- Calculating how much they need to save
for retirement (40%);
- Receiving specific advice on how to
invest their 401(k) (37%);
- Figuring out what their expenses will
be in retirement (35%).
Many participants leverage and find value in web-based financial
tools, with just over half (52%) saying they have used an online
retirement calculator. Of those who have used one, 71 percent felt
encouraged and wanted to learn more, and 61 percent even took
positive actions related to their finances, such as:
- Increasing their 401(k) contributions
(48%);
- Changing their spending habits
(29%);
- Accessing online advice (28%).
“It’s so encouraging to see people using online resources to
take their financial pulse, and even more encouraging that many are
taking action. The next step would be talking with a financial
professional, a service many people can access through their
401(k),” added Golladay. “We believe everyone can benefit from
professional financial advice, and by offering it at work,
employers can help move their employees from saving to investing to
true financial ownership.”
Other Notable Survey Findings
- The vast majority of participants (87%)
consider a 401(k) a must-have benefit. Only health insurance ranked
higher (89%).
- The top obstacles participants face
when trying to save for retirement are paying for unexpected
expenses like home repairs (37%), paying off credit card debt
(31%), and needing enough money for basic monthly bills (30%). Just
fourteen percent named paying off student loans as an
obstacle.
- Similarly, participants’ top sources of
financial stress are saving enough money for a comfortable
retirement (38%), paying off credit card debt (25%) and keeping up
with monthly expenses (24%).
- Finally, a quarter (26%) of
participants have taken a loan from their 401(k). Of those, more
than half have taken multiple loans.
About the Survey
This online survey of U.S. 401(k) participants was conducted by
Logica Research for Schwab Retirement Plan Services, Inc. Logica
Research is neither affiliated with, nor employed by, Schwab
Retirement Plan Services, Inc. The survey is based on 1,000
interviews and has a 3 percent margin of error at the 95 percent
confidence level. Survey respondents worked for companies with
at least 25 employees, were current contributors to their 401(k)
plans and were 25-70 years old. Survey respondents were not asked
to indicate whether they had 401(k) accounts with Schwab Retirement
Plan Services, Inc. All data is self-reported by study participants
and is not verified or validated. Respondents participated in the
study between March 19 and March 29, 2019. Detailed results can be
found here.
About Charles Schwab
At Charles Schwab we believe in the power of investing to help
individuals create a better tomorrow. We have a history of
challenging the status quo in our industry, innovating in ways that
benefit investors and the advisors and employers who serve them,
and championing our clients’ goals with passion and integrity.
More information is available at www.aboutschwab.com. Follow us
on Twitter, Facebook, YouTube and LinkedIn.
Financial tools and resources are available at
www.schwabmoneywise.com.
Disclosures
Through its operating subsidiaries, The Charles Schwab
Corporation (NYSE: SCHW) provides a full range of securities
brokerage, banking, money management and financial advisory
services to individual investors and independent investment
advisors. Its broker-dealer subsidiary, Charles Schwab & Co.,
Inc. (member SIPC, www.sipc.org), and affiliates offer a complete
range of investment services and products including an extensive
selection of mutual funds; financial planning and investment
advice; retirement plan and equity compensation plan services;
compliance and trade monitoring solutions; referrals to independent
fee-based investment advisors; and custodial, operational and
trading support for independent, fee-based investment advisors
through Schwab Advisor Services. Its banking subsidiary, Charles
Schwab Bank (member FDIC and an Equal Housing Lender), provides
banking and lending services and products. More information is
available at www.schwab.com and www.aboutschwab.com.
The Charles Schwab Corporation provides services to retirement
and other benefit plans and participants through its separate but
affiliated companies and subsidiaries: Charles Schwab Bank; Charles
Schwab & Co., Inc.; and Schwab Retirement Plan Services, Inc.
Trust, custody, and deposit products and services are available
through Charles Schwab Bank. Schwab Retirement Plan Services, Inc.
is not a fiduciary to retirement plans or participants and only
provides recordkeeping and related services.
Schwab MoneyWise® is provided by Charles Schwab & Co.,
Inc.
©2019 Schwab Retirement Plan Services, Inc. All rights reserved.
(0519-975C)
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Mike PetersonCharles
Schwab330-908-4334mike.peterson@schwab.com
Mike GelorminoIntermarket
Communications212-754-5479mgelormino@intermarket.com
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