If it wasn’t already a known commodity to industry stakeholders and workers saving for retirement, a new study confirms that the 401(k) is becoming a non-negotiable benefit for job seekers.
When considering a new employer, nearly 9 in 10 workers (88%) say a 401(k) is a “must-have” benefit and three in four would refuse a new job if it did not offer a 401(k) plan. This is according to Charles Schwab’s annual nationwide survey of 401(k) plan participants.
Having a 401(k) plan was second only to health insurance, in which 90% indicated it’s a must-have benefit. There was a steep drop-off following health and 401(k) plans, where life insurance (46%), disability insurance (43%) and flexible work hours/location (41%) were next in line.
"Placing such a high priority on their 401(k) is not surprising since it is their primary retirement resource, with workers counting on it to deliver 40% of their retirement income,” said Marci Stewart, Director, Communication Consulting and Participant Education for Schwab Workplace Financial Services. “That’s double what workers expect from the next closest source, which is Social Security at 20% of retirement income.”
Prioritizing 401(k) Saving
Workers are also continuing to prioritize 401(k) saving, even though inflation and market volatility are impacting their ability to save for retirement to a greater extent than last year.
The survey found that 62% of workers see inflation as an obstacle to saving for a comfortable retirement, up from 45% last year, and 42% say stock market volatility is an obstacle, up from 33% last year. Nearly 8 in 10 (78%) say these conditions are impacting their spending and saving habits, and 36% plan to delay retirement as a result.
That said, compared to last year, more workers are also saving for retirement in a savings accounts (68% vs. 61%), investing in an IRA (47% vs. 33%) and investing through a brokerage account (38% vs. 29%) as they look to augment their primary retirement fund with other methods of saving and investing.
“While many workers are trying to cut back on spending, some costs are unavoidable and certain areas of their finances have taken a hit,” observes Brian Bender, head of Schwab Workplace Financial Services. “Despite these challenges, retirement saving continues to be a priority for workers, who have maintained their 401(k) savings rates and largely stayed on top of their 401(k) investments over the past year.”
How Much to Retire?
And while most concede that they will not get there, additional findings show that workers now believe they’ll need to save an average of $1.8 million for retirement, compared to $1.7 million last year. While this amount hasn’t shifted dramatically, only about 3 in 10 workers (37%) think it’s “very likely” they’ll achieve this target, down by 10% from last year.
Confidence also may have taken a hit, but savers are still hopeful, Schwab notes. To that end, nearly half (49%) still feel “somewhat likely” to reach their goals and only 14% feel they are “not at all likely” to reach their goals.
New Tech vs. Human Touch
Meanwhile, even as new technologies emerge, workers still prefer the human touch. According to the findings, half of workers would feel comfortable asking artificial intelligence (AI) tools like ChatGPT for help with financial planning, but for now, actual adoption is very low (4%). Workers are still most likely to follow advice from a human professional (95%) over computer-generated advice (74%).
As in past years, the survey continues to underscore that advice plays a pivotal role in workers’ confidence. Less than 3 in 10 workers (27%) feel “very confident” making 401(k) investment decisions on their own, while that level of confidence nearly doubles to 49% when investment decisions are made with professional help.
Most workers (73%) say they would like personalized advice on their 401(k) plan and 39% say they are already receiving such advice through their plan at work. More specifically, workers indicate that they would like help calculating how much to save for retirement (41%), how to invest their 401(k) (40%), determining when they can afford to retire (38%), and creating a retirement income stream (36%).
SECURE 2.0 Effect
In addition to basic retirement planning advice, workers also want help understanding how new regulatory and legislative changes like the SECURE 2.0 Act affect their retirement plan.
Just over half (56%) of workers have heard of SECURE 2.0. Among the provisions in the new law, Schwab found that workers are most aware of the increased age for required minimum distributions (RMDs) (41%) and the increased 401(k) catch-up contribution limits starting in 2025 for those aged 60 to 63 (40%). Trailing not far behind, however, were easier 401(k) withdrawals for emergency expenses at 39% and increased automatic enrollments in a 401(k) at 38%.
“It’s encouraging to see that many workers are in-tune with the evolving rules and regulations surrounding their retirement plans,” adds Stewart. “By understanding what matters to employees, employers can drive engagement as they fine tune their benefit offerings to optimize recruitment and retention.”
The survey of 1,000 U.S. 401(k) plan participants was conducted by Logica Research between April 19 and May 2, 2023. Survey respondents were actively employed by companies with at least 25 employees, were 401(k) plan participants and were 21-70 years old. Respondents included participants served by approximately 15 different retirement plan providers.
Additional results can be found here.
