Inflation is now the top obstacle to saving for a comfortable retirement, according to a new survey from Schwab Retirement Plan Services.
The firm’s annual nationwide survey of 401(k) plan participants finds that workers rank inflation (45%) ahead of other obstacles, including keeping up with monthly expenses (35%), stock market volatility (33%) and unexpected expenses (33%).
In response to rising costs and market volatility, 79% of workers are changing their saving and spending habits, while 44% have altered their 401(k) investments.
“Workers have been through a lot over the past two years and it’s only natural that recent economic and geopolitical turbulence has continued to fuel financial concerns,” says Catherine Golladay, Head of Schwab Workplace Financial Services. “While plan participants can’t control inflation or the markets, the good news is they are taking steps to manage their finances with an eye to the future.”
According to the findings, workers are cutting spending by reducing the number of purchases they make (34%), buying cheaper products (32%) and paying off debt more slowly (21%).
Yet despite the belt tightening, workers are still saving less (33%) and spending more in general (30%). Moreover, they are saving less for emergencies (20%), investing less outside their 401(k)s (18%) and contributing less to their 401(k)s (15%).
And while workers believe they’ll need to save an average of $1.7 million for retirement—down from $1.9 million reported in last year’s survey—fewer than half (47%) feel they are “very likely” to reach their retirement savings goal. They expect the 401(k) to be their primary financial resource in retirement, providing 37% of income, followed by Social Security (17% of income).
Nearly a quarter of workers say they plan to retire later because of the pandemic. What’s more, a third of plan participants do not know how long their savings are likely to last in retirement, and the two thirds who offered an estimate say they expect their retirement savings to last 23 years on average.
Stress Relief
Meanwhile, financial strain continues to take a toll on mental and financial stress. Only 15% of employees say they have not been under financial stress, and 26% say stress about their financial situation has affected their ability to do their job in the past year, similar to last year’s survey findings.
One positive is that many workers say their employers have helped them manage financial stress in the past year. According to the results, 60% of employers took action to help workers manage financial stress in the form of increased pay (32%), increased 401(k) match (23%) and additional bonus (20%).
Advice Increases Confidence
Most workers also say their financial situation warrants professional advice (60%). More than half (55%) say they would be very confident making 401(k) investment decisions with the help of a financial professional, compared to just 38% who say they are very confident making 401(k) investment decisions on their own.
Specifically, Schwab found that plan participants want help with:
- how to invest their 401(k) account (43%);
- calculating how much money to save for retirement (42%);
- creating an income stream in retirement (38%);
- determining at what age they can afford to retire (36%); and
- anticipating taxes in retirement (32%).
Workers, however, do convey barriers to accessing advice through their workplace plan. They cite cost (23%), advice limitations (22%), lack of awareness (19%) and confidentiality concerns (18%) among the reasons they would not seek financial advice via their employer.
“Employers can help by debunking misconceptions about financial advice available through the workplace,” Golladay emphasizes. “Many employers offer different levels of advice at no additional cost or low cost, and workers tell us making 401(k) investment decisions with the help of a financial professional would make them more confident, which is one of the most important factors in their financial well-being.”
The online survey of 1,000 U.S. 401(k) participants was conducted by Logica Research for Schwab between April 4–19, 2022. Respondents were actively employed by companies with at least 25 employees, were 401(k) plan participants and were 21-70 years old.
