A Nightmare on 401(k) Street: The Spookiest Retirement Facts

Forget scary movies—juggling day-to-day costs, emergency savings, healthcare costs, and retirement savings has already proven to keep some participants up at night.

It’s not all just a bunch of hocus pocus, either. Studies have shown that financial stress can impede participants’ wellbeing at home and in the workforce. However, advisors have the guidance and knowledge to pull participants out of their own haunted house—as long as they understand how investors were led to their situation.  

This Halloween, we’ve gathered the top scariest facts concerning participants’ retirement readiness. See the next few pages for a good scare.  

Job transitions could lead to $300K retirement Loss

One of the spookiest facts to hit in 2024 is the idea that switching employers could cost employees in the long-term.

A study by Vanguard, using administrative data of over 54,000 workers for whom Vanguard is a recordkeeper for, found that while the median job switcher sees a 10% salary growth, they’re also likely to experience a 0.7 percentage point decline in retirement savings, despite continuing to save more in dollar terms. Even those who experienced a pay increase of over 20% still exhibited a slowdown in their saving rate.

Vanguard finds that if instead of switching jobs, they had received a promotion at their old employer with the same 26% salary increase, they could have saved $1,274 more in the year after their raise.

Income-wise, workers who earn $60,000 at the beginning of their career, who then switch jobs eight times across employers, could be losing out on a potential retirement savings of $300,000. This is enough to fund an estimated six additional years of spending in retirement, Vanguard reports.

Women’s inability to retire

The Transamerica Center for Retirement Studies released a new study last week with a series of facts highlighting how women face retirement in 2024, finding that half of women (50%) expect to retire after age 65 or do not plan to retire, and 53% plan to work in retirement.

The hesitancy could stem from the fact that many have not saved enough to reach their usual annual income. Women reported having $44,000 in total household retirement savings, while Baby Boomer women have saved $98,000, compared with Generation X ($61,000), Millennials ($37,000), and Generation Z ($21,000). Transamerica reports that it is questionable whether many women are saving adequately for a retirement that could last 20 to 30 or more years.

Among women who plan to work past age 65 and/or in retirement, more cite financial reasons (82%) than healthy-aging reasons (75%).

Furthermore, only 20% of women have a financial strategy written for retirement.

401(k) participants regret not saving earlier

While Americans on average begin their retirement savings journeys in their late 20s, research from Voya Financial finds close to three-quarters wish they had started saving sooner.

New findings from a Voya consumer survey show that more than half of Americans started saving for retirement between 18 to 34 years old, with the average starting at age 28. However, 64% of respondents say they wish they commenced savings before they turned 25, with the average wishing they started saving at 23 years old.

Millennials were slightly off in beginning their savings journey, with the average starting at 24 but wishing they had initiated savings a year earlier at 23. Gen Xers began saving at 30 despite wishing they had begun at 23, while Baby Boomers had the largest gap out of all generations—starting their savings at 32 yet wishing they had taken action at 23.

Gen X retirement insecurity

In being the next generation to head into retirement, reports in 2024 have highlighted how Gen X is preparing for retirement. Prudential’s Pulse of the American Retiree Survey found that 55-year-old Americans, who are members of Gen X, are “far less” financially secure than their older colleagues, with a median retirement savings of less than $50,000. Furthermore, 67% of 55-year-olds are concerned about outliving their savings, compared to 59% of 65-year-olds and 52% of 75-year-olds.

This findings are similar to those in a Natixis study, which found almost half of Gen Xers believe it would take a “miracle” for them to retire securely. The report found that 44% of Generation X workers say it would be miraculous if they could retire, while 24% believe they won’t be able to retire at all.

Disconnects between advisors and investors

An Alliance for Lifetime Income study revealed key disconnects between financial planning professionals and investors when approaching protected income and annuities in retirement.

The findings, based on responses from 2,516 consumers for the firm’s 2024 Protected Retirement Income and Planning (PRIP) study, shows that while 62% of advisors say they’ve initiated conversations about annuity products, just 27% of investors agree. Similarly, when discussing retirement income planning, 98% of planners say they have talked about Social Security, pensions, and annuities, but only 69% of clients agree. The study goes on to report that a lack of engagement could cause the disconnect between both groups. While plan sponsors and third parties could provide material to employees, most will not engage unless it’s targeted to them.