Inflation Wreaking Havoc with Workers’ Retirement Saving

(401K Specialist) - Inflation is now the top obstacle to saving for a comfortable retirement, Schwab Retirement Plan Services finds. The annual survey of 401k plan participants finds that workers rank inflation (45%) ahead of other obstacles, including keeping up with monthly expenses (35%), stock market volatility (33%), and unexpected expenses (33%).

“They expect the 401k to be their primary financial resource in retirement, providing 37% of income, followed by Social Security (17% of income).”

“Workers have been through a lot over the past two years, and it’s only natural that recent economic and geopolitical turbulence has continued to fuel financial concerns,” Catherine Golladay, Head of Schwab Workplace Financial Services, said in a statement. “While plan participants can’t control inflation or the markets, the good news is they are taking steps to manage their finances with an eye to the future.”

Workers believe they’ll need to save an average of $1.7 million for retirement, down from $1.9 million reported in last year’s survey, and just under half (47%) feel they are very likely to reach their retirement savings goal.

They expect the 401k to be their primary financial resource in retirement, providing 37% of income, followed by Social Security (17% of income).

Workers change how they save, spend and invest

In response to rising costs and market volatility, 79% of workers are changing their saving and spending habits, while 44% have altered their 401k investments.

Workers are cutting spending by reducing the number of purchases they make (34%), buying cheaper products (32%), and paying off debt more slowly (21%). Despite the belt-tightening, workers are still saving less (33%) and spending more in general (30%). They are saving less for emergencies (20%), investing less outside their 401ks (18%), and contributing less to their 401ks (15%).

Almost one-quarter of workers say they plan to retire later as a result of the pandemic. One-third of plan participants do not know how long their savings are likely to last in retirement, and the two-thirds who offered an estimate say they expect their retirement savings to last 23 years on average.

Employers address financial stress among workers

Financial strain continues to take a toll on mental health. Only 15% of employees say they have not been under financial stress, and more than a quarter of respondents (26%) say stress about their financial situation has impacted their ability to do their job in the past year, similar to last year’s survey findings.

“Many workers say their employers have helped them manage financial stress in the past year,” said Golladay. “With talent management top of mind for so many employers, demonstrating support for employees through tough times plays a key role in both loyalty and recruitment.”

The majority of employers (60%) took action to help workers manage financial stress in the form of increased pay (32%), increased 401k match (23%), and additional bonuses (20%). Some also decreased hours to allow for better work-life balance (11%).

Advice increases worker confidence

Most workers say their financial situation warrants professional advice (60%). More than half (55%) say they would be very confident making 401k investment decisions with the help of a financial professional, compared to just 38% who say they are very confident making 401k investment decisions on their own.

Specifically, plan participants want help with:

  • How to invest their 401k account (43%)
  • Calculating how much money to save for retirement (42%)
  • Creating an income stream in retirement (38%)
  • Determining at what age they can afford to retire (36%)
  • Anticipating taxes in retirement (32%)

However, workers see barriers to accessing advice through their workplace plan. They cite cost (23%), advice limitations (22%), lack of awareness (19%), and confidentiality concerns (18%), among the reasons they wouldn’t seek financial advice via their employer.

“Workers are facing an array of economic challenges that are driving their demand for financial advice. Employers can help by debunking misconceptions about financial advice available through the workplace,” Golladay concluded. “Many employers offer different levels of advice at no additional cost or low cost, and workers tell us making 401k investment decisions with the help of a financial professional would make them more confident, which is one of the most important factors in their financial well-being.”

By John Sullivan, Editor-In-Chief
July 26, 2022


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