Despite facing economic challenges, American workers are confident they’ll save enough for retirement. Still, competing financial priorities may test their journey in saving.
New research from Goldman Sachs, “Diving Deeper into the Financial Vortex: A Way Forward,” investigates the financial challenges Americans are facing today, and how conflicting, pressing matters can threaten long-term savings. The findings surveyed 5,261 consumers, with 3,673 working individuals and 1,588 retirees.
According to the data, 65% of American workers are confident in their ability to meet retirement savings goals, up from 57% in 2022. Yet, Goldman Sachs found that over the long-term, financial vortex challenges, including credit card debt, saving for college, and financially supporting family could reduce retirement savings among American employees by up to 37%.
As a result, 21% of workers believe this vortex of challenges will delay their retirement by four or more years.
“Retirement savers face a complex backdrop of concerns that are economic and personal in nature,” said Christopher Ceder, a senior retirement strategist in the asset management division for Goldman Sachs. “As retirement strategists, we think about what are the problems that people save and what are the real-life scenarios that will impact retirement.”
Sacrificing the long-term for the short
Unplanned financial challenges have taken away from respondents’ financial futures as well, especially as only 36% of American workers have three months of income or more allocated for emergencies, Goldman Sachs finds.
Working respondents reported higher incidents in 2023 that included caregiving, cash-outs, and financial adversities. Forty-four percent of respondents cashed-out retirement savings at least once upon a job change (up from 42%); 42% stopped saving for retirement due to a financial hardship (up from 33%); 39% left the workforce to provide caregiving (up from 22%); and 22% left their full-time job for a part-time job to provide caregiving (up from 10%).
“What you’re seeing is that individuals are saying they need help with the near-term, with what’s in front of me,” added Ceder. “That will help them accomplish both goals.”
Financial resilience in a challenging market
Access to emergency savings, financial literacy, and retirement plans can curb impacts faced with financial challenges, Goldman Sachs reports. While only 13% of respondents correctly answered standardized financial literacy questions that tested principles of interest, inflation, compounding, and diversification, those who did were far less likely to say their retirement savings were impacted by such trials.
The questions also demonstrated a small but counterintuitive trend, Goldman Sachs reports – those who answered the fewest questions correctly were more likely to manage their own savings (55% for those with zero), and those who answered the most correctly were less likely to manage on their own (44% with all five). Instead, these respondents were most likely to seek professional advice.
“Retirement savers face a complex backdrop of concerns that are economic and personal in nature.”
Christopher Ceder, Goldman Sachs
Participating in a retirement plan is also critical to controlling savings—79% of plan participants said their retirement savings were on-track or ahead of schedule, compared to 34% without a plan. Conversely, 61% of workers without a plan reported being behind schedule, compared to 21% with a plan.
The numbers trended even higher among those with personalized financial plans: 83% said they feel confident in reaching their goals with a tailored strategy, versus 40% of those without one.
When it came to retirees, those with a plan were less likely to hold under 50% of their working income, and 37% had an income greater than 70% of pre-retirement income levels. Among those with a plan, 78% felt confident in making the transition from work to retirement, compared to 56% without one.
Still, among this group, 42% receive 50% or less of their pre-retirement income, including Social Security, and 23% receive less than 40%. Only 53% are satisfied with their income.
Rethinking the 401(k) plan
As they struggle to balance finances with competing priorities, workers increasingly look to their employers for help—both now and for the future. Because of this, employers are reconsidering their 401(k) plan design, and one that caters more to their participants.
When asked what plan features and services are most important to keep their savings in their employer’s 401(k) plan post-employment, working respondents and retirees most value guaranteed income options (43% and 38%), and retirement tools and calculators (36% and 32%).
Among the top choices for plan design enhancements include emergency saving accounts (36%), professional financial planning services (36%), and guaranteed income options (33%).
Other benefits include voluntary options that focus on key financial strains impacting workers now, such as childcare, student loan repayment options, and even lifestyle spending accounts (LSAs). Kathy Barber, head of corporate benefits and compensation at Goldman Sachs, notes that more employers are incorporating such benefits to relieve competing priorities and maximize their 401(k) plan.
“We’ve gone through a period of employers adding a lot of employer benefits, to try to meet the needs of diverse populations. Companies can really look for strategies to simplify that and consolidate,” Barber said. “What are the critical plans and how do you most effectively look and maximize your 401(k)? Focusing more time and effort in helping employees maximize plans rather than looking to expand even more when utilization is already not great.”
SEE MORE:
- Now Is the Time for Emergency Savings
- Emergency Savings and Retirement Planning Tightly Linked
- How SECURE 2.0 Validates Emergency Savings Initiatives
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
