401k Retirement, Investment and Practice Management News for Financial Planners

401k Participants Not Investing Enough to Hit ‘Magic’ Retirement Number

Brian Anderson
401k plan participants, not investing

401k plan participants have a pretty good idea of how much they'll need for retirement, but they aren't allocating enough to get there.


If you think you need this much to retire, how come you’re only saving enough in your 401k to reach this much?

That’s a primary issue identified in new research from Schwab Retirement Plan Services, which finds that although 401k 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 401k plan participants also reveals the outsized role of the 401k 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 401k plan was their first experience with investing—yet when it comes to using a 401k, 64% view themselves as savers rather than investors. In fact, the survey shows that outside of a 401k, participants are more likely to use a savings account to prepare for retirement than any type of investment account.

Steve Anderson

“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, 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 401k, and ultimately better help you reach your goals.”

Missed investment opportunities

While everyone’s path to retirement is different, investing a sufficient percentage of the plan participant’s salary early on is key to growing a nest egg. Half of those surveyed (51%) are contributing 10% or less of their salary to their 401k, with the average annual contribution totaling $8,788.

This is a good start but may not be enough, especially if they start investing for retirement later in life. To put this in perspective, Schwab has determined that if a plan participant starts in their 20s, they will likely be able to retire comfortably by investing 10% to 15% of their salary each year. But if they don’t start until age 45 or older, they might need to invest as much as 35% of their 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 401k, 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% 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.

Among those surveyed who were auto-enrolled into their 401k plan, 33% have never increased their contribution rate and 44% have never changed their investment choices.

Catherine Golladay

“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 401k 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:

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% even took positive actions related to their finances, such as:

“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 401k,” Golladay said. “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

About the survey

This online survey of U.S. 401k participants was conducted by Logica Research for Schwab Retirement Plan Services, Inc. Survey respondents worked for companies with at least 25 employees, were current contributors to their 401k plans and were 25-70 years old. Survey respondents were not asked to indicate whether they had 401k 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.

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