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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.
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.
President of Schwab Retirement Plan Services, Steve Anderson, say those surveyed seem to have a realistic target for retirement, but many likely aren’t on track to get where they want to go. Too many overlook the potential benefits of getting advice, he adds.
And when asked how they decided how much to contribute to their plan initially, 55% say they chose a percentage they were comfortable with, 36% contributed as much as their employer matched and 8% were automatically enrolled at a default percentage chosen by their employer. Half of those surveyed (51%) are contributing 10% or less of their salary to their 401(k), with the average annual contribution totaling $8,788.
To put this in perspective, Schwab research has determined that if a person starts saving in their 20s, they will likely be able to retire comfortably by investing 10% to 15% of salary each year. But if the person doesn’t start until age 45 or older, this could require deferrals of as much as 35% of the annual salary.
Other survey results show 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% felt encouraged and wanted to learn more, and 61% took positive actions related to their finances, such as increasing their 401(k) contributions, changing their spending habits or accessing online advice.
According to the survey, 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%). Fourteen percent named paying off student loans as an obstacle.
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