Workers still think they need to save a hefty $1.8 million for retirement, but there has been a significant increase in the percentage of workers who think they are very likely to achieve their retirement savings goals compared to a year ago.
That key finding from Charles Schwab’s 2024 401(k) Participant Study, released today, found 43% of workers say they are very likely to achieve their retirement savings goals compared to just 37% in 2023. Schwab attributed the rise in retirement confidence to a softening of concern over inflation and market volatility.
Notable Findings:
• 43% of retirement income expected to come from a 401(k) (up from 40% in 2023)
• $1.8 million thought to be needed for retirement (same as last year)
• 43% feel likely to achieve retirement savings goals (up from 37% in 2023)
• Average age expected to retire is 68 for Boomers but 60 for Gen Z
“Workers are feeling more optimistic about their retirement prospects and an improving economic climate tends to boost financial confidence, but it’s not the only factor,” said Lee McAdoo, Managing Director of Schwab Retirement Plan Services. “We’re seeing heightened awareness around 401(k) investments and performance—a promising sign that workers are actively engaging with their accounts and cultivating knowledge to help them reach their goals.”
When it comes to that polarizing “magic number” needed for retirement—a concept often loathed by economists and scholars as an unrealistic and unnecessary milestone—the Schwab 401(k) survey found workers think they need to save $1.8 million, which is the same as last year. Earlier this year, a Northwestern Mutual study found Americans believe they need to save $1.46 million for a comfortable retirement.
“We’re seeing heightened awareness around 401(k) investments and performance…”
Lee McAdoo, Schwab Retirement Plan Services
401(k) participants surveyed by Schwab say they expect their nest egg to last 23 years on average after retiring at age 65—which is the survey’s average age of expected retirement. Notably, Boomers say they expect to retire at age 68 while Gen Z thinks they will retire at age 60 (Millennials say 64, Gen X 65).
Notably, only 8% of the Schwab survey respondents say they don’t know what investments are in their 401(k) account, an improvement from 12% in 2023. In addition, more workers say they know what investments to choose for their 401(k) (69% up from 65% in 2023) and 92% know how their 401(k) is performing.
Appetite for advice
As confidence and 401(k) knowledge have improved, the Schwab survey found workers’ appetite for financial advice has increased as well.
Sixty-one percent feel their financial situation warrants advice from a professional, higher than last year (55%). Plus, more workers would be very confident in making the right 401(k) investment decisions with the help of a financial professional (55%, up from 49%), than they would making those decisions on their own (29%, up from 27%).
Workers are most likely to say they seek advice directly through their 401(k) plan (39%), followed closely by their financial advisor (35%), family and friends (27%), and their employer (25%). Sixty-one percent are comfortable asking artificial intelligence tools like ChatGPT for help with financial planning, up from 49% in 2023. Still, more say they are very likely to follow human professional advice recommendations (60%) rather than computer-generated recommendations (19%).
“Improved 401(k) confidence is not necessarily an indicator that workers are comfortable going it alone,” said Marci Stewart, Director of Client Experience at Schwab Workplace Financial Services. “In fact, they are realizing that professional help has the potential to further accelerate their progress. Self-guided education and computer-generated advice can provide solid financial wellness support, and a human professional can validate your plan and make more tailored recommendations, which can be invaluable for feeling more confident and financially secure in the long term.”
Solving the retirement income puzzle
The survey finds that more workers would like help with creating an income stream in retirement—a possible symptom of waning confidence in Social Security.
Overall, respondents expect 43% of their retirement income to come from a 401(k), up from 40% last year. They expect Social Security to make up 16% of their retirement income on average, down from 20% last year. Workers who are within 10 years of retirement expect to rely much more on Social Security than those further from retirement. Those who will still be working for at least 11 more years expect to rely more on their 401(k) than those closer to retirement.
Workers who are closer to retirement also have focused on investing outside their 401(k) through individual retirement accounts and brokerage accounts significantly more than those who are further from retirement. Savings accounts are popular among all workers, and a significant share of workers are using health savings accounts and company stock plans to save for retirement, too.
“Uncertainty about the future of Social Security means employers will play an increasingly important role in helping workers develop a retirement income stream not only through their 401(k), but also through other workplace financial benefits that can include health savings accounts, company stock plans and traditional pension plans,” said Stewart.
The survey found those within 10 years of retirement expect a 401(k) to provide 37% of retirement income, Social Security to provide 22% and additional sources (e.g., investments, DB plans, company stock plans, part-time work) to provide 41%. Those 11 or more years from retirement expect a 401(k) to provide 45%, Social Security 13% and additional sources 42%.
See the full findings here.
SEE ALSO:
• $1.46 Million: New ‘Magic Number’ for a Comfortable Retirement
• Self-Directed 401(k)s Grow 5.8% in Q1 2024
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
