When asked how many years they believe their retirement savings will last in retirement, a significant percentage of 401(k) plan participants indicate they have no idea, according to the results of a new survey.
Results from Schwab Retirement Plan Services’ 2020 401(k) Participant Survey of 1,000 currently employed 401(k) plan participants reveal that 32% say they do not know how many years their retirement savings might last—and the level of uncertainty is higher among women (40%) than men (25%). Overall, 68% of participants did give an estimate of how long, with the average being 24 years.
Accordingly, the area in which 401(k) participants say they could most use help is understanding how much they’ll need to save for retirement. When asked if they could get help with retirement planning, the top five responses were:
- calculating how much they need to save for retirement (39%);
- anticipating tax expenses (34%);
- determining their retirement age (33%);
- creating an income stream in retirement (33%); and
- receiving specific advice on how to invest their 401(k) (32%).
On average, participants in the study say they plan to retire at age 65 and estimate they need to save $1.9 million for retirement.
Not surprisingly, participants’ confidence in making investment decisions in their 401(k) increases significantly with the help of a financial professional. Nearly half (49%) report they would be very confident in their investment decisions with help, versus only a third (32%) feeling very confident on their own. Just half (50%) of those surveyed said they felt their situation warrants financial advice.
“Even if you think your financial situation doesn’t warrant outside help, having that conversation with a professional is a valuable step to take,” suggests Catherine Golladay, executive vice president and head of Workplace Financial Services at Schwab, who notes that talking to a financial professional can provide important clarity.
Income in Retirement
When it comes to building a retirement paycheck, participants expect that 44% of their income will come from a 401(k). The remaining 56% is expected to come from a range of sources. Below are the top five sources identified by participants in the study, along with the percentage they expect each source to contribute to their retirement:
- 401(k) (44%)
- Social Security (17%)
- Savings and investments (15%)
- Traditional pensions/defined benefit plans (10%)
- Part-time work (4%)
Maxing Out
About one in four (26%) participants said they contributed the maximum allowed in 2019. Schwab also found that the average amount participants contributed to their 401(k)s was up 20% compared to last year’s survey: $10,562 in 2019 vs. $8,788 in 2018.
Aside from their 401(k), surveyed participants indicate they are more likely to be saving for retirement in a savings account, versus investing in the markets. More than half (57%) say they are using a savings account to save for retirement, while less than half say they are investing for retirement in an IRA (48%) or a brokerage account (38%).
Healthcare Savings
More than three-quarters (77%) of 401(k) participants are offered a health savings account (HSA) and almost half (45%) currently use it, according to the findings.
Schwab notes that, for many, their HSA is helping to pay for their current health insurance deductibles or unexpected short-term healthcare costs. In addition, two in five (41%) currently are using their HSA to save for healthcare costs in retirement. In 2019, 33% said they contributed enough to their HSA to cover their immediate needs and set aside money for retirement.
The online survey of 1,000 U.S. 401(k) participants was conducted May 28-June 11, 2020, by Logica Research for Schwab. Survey respondents were actively employed by companies with at least 25 employees, were 401(k) plan participants and were between 25 and 70 years of age.
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