Retirement Confidence Surges for 401k Participants in Wake of Pandemic

Schwab 401k confidence, retirement confidence

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What a difference a (pandemic) year makes. 401k plan participants today report they are significantly more confident about achieving retirement goals than they were a year ago, when the COVID-19 pandemic was raging.

This according to a new survey from Schwab Retirement Plan Services, which also found participants’ appetite for financial advice has risen sharply as well.

The annual nationwide survey of 401k plan participants finds that more than half (53%) say they are very likely to achieve their retirement goals, compared to just 37% in 2020. On average, plan participants in 2021 believe they need to save $1.9 million for retirement—which is the same amount as in 2020. Ninety-one percent say their financial health is either very good or pretty good.

Catherine Golladay

“We experienced tremendous stress in our work and home lives this past year that highlighted the importance of financial wellness and the value of trusted advice,” said Catherine Golladay, head of Schwab Workplace Financial Services. “Now, as we emerge from the pandemic, employers have an opportunity to engage employees with education, advice and a range of other workplace benefits to help them build financial security and increase satisfaction at work.”

Contribution rates likely to increase

Many participants report the pandemic has changed the way they approach saving and spending, with 48% planning to save more in general, 36% planning to increase their 401k contribution rate, 35% planning to invest more outside of their 401k plan, and 34% planning to pay off debt.

Despite their optimism, many participants also face obstacles to saving for retirement, including market volatility (32%), unexpected expenses (29%), keeping up with monthly expenses (27%), education expenses (21%), and credit card debt (20%).

After more than a year of the pandemic, 23% feel they will have to delay retirement due to COVID. Six in 10 (61%) think their financial situation warrants professional advice to address these kinds of challenges, compared with half (50%) in 2020.

The top four retirement planning areas where participants want help are calculating a retirement savings goal (44%), receiving advice on how to invest a 401k (39%), figuring out how to create income in retirement (35%), and anticipating taxes in retirement (35%).

The percentage of survey respondents who are very confident making their own 401k investment decisions has increased from 25% in 2019 to 40% in 2021 but still lags those who are very confident in making investment decisions with the help of a financial professional: 44% in 2019 and 56% in 2021.

“Optimism is fueling a recalibration of expectations,” Golladay said. “Workers went back to basics for a year and rediscovered the importance of work-life balance. Do-it-yourself retirement planning was really tested because workers were pressed in other areas. Many have decided that more help is the answer, and they are also looking beyond retirement to other workplace benefits that support financial security.”

Must-have benefits

401k plans and health insurance again top the list of desired workplace benefits with more than 80% of participants saying these are “must-haves.” Other top-five must-have benefits according to survey respondents are life insurance (50%), disability insurance (43%), and health savings accounts (38%).

Among these other benefits, health savings accounts (HSAs) had the largest increase in respondents who consider them must-haves compared with 2020, growing from 32% to 38%. Eight out of 10 survey respondents (79%) have access to an HSA at work, and half (49%) use it. HSAs have been a popular way to pay insurance deductibles and other immediate healthcare expenses, but more participants are also using HSAs to save for healthcare expenses in retirement; 54% in 2021 compared with 41% in 2020.

“It’s good news that plan participants have kept one eye on their future retirement even as they face a challenging present,” Golladay said. “Successful employers will capitalize on this and provide benefits and resources that can help turn today’s optimism and engagement into tomorrow’s financial security.”

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