New research indicates that although participants in 401K retirement savings plans believe that they’ll need roughly $1.7 million in order to fully fund retirement, most participants aren’t saving nearly enough to reach that goal. This is according to a national survey conducted by Schwab Retirement Plan Services.
The survey, conducted on a national scale with about 1,000 total respondents, also illustrates that the 401K plan itself is becoming an increasingly important component in the retirement plans for working Americans, with 58 percent of respondents saying that their 401K plans are either their largest, or only source of retirement savings.
65 percent of respondents also shared that their 401K plans were their first-ever experiences with investing, even though most of that number tend to view themselves primarily as money savers as opposed to investors. By extension, the survey also found that outside of a 401K, participants are more likely to use a savings account for retirement preparation when compared with virtually 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 401K plan to understand that they’re already an investor, whether they realize it or not,” said Steve Anderson, president of Schwab Retirement Plan Services in a press release announcing the survey results. “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 401K, and ultimately better help you reach your goals.”
Investing a sufficient portion of a worker’s salary earlier in life is, “key to growing a nest egg. Half of those surveyed (51 percent) are contributing 10 percent or less of their salary to their 401K, with the average annual contribution totaling $8,788,” the press release reads.
While this may be a good starting point, depending on when the retirement investment process begins can mean that it is either a sufficient path to a comfortable retirement or the beginning of a potential retirement income issue.
“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,” the press release reads. “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.”
The survey results also point toward a potential opportunity for employers to educate their workers about the realities related to retirement investing. Employers could potentially offer tools and resources to encourage retirement saving or investment, including access to advice and managed account services.
“Nearly all of those surveyed (95 percent) acknowledge they would feel confident in making the right financial decisions with professional help,” the press release says. “Yet just half of participants (52 percent) feel their situation actually warrants financial advice.”
The survey results also revealed that workers could likely use professional help in determining things like when they can afford to retire, determining how much they will need to save for retirement, and specific advice concerning how to invest a 401K.
Read the full press release at Business Wire.