Study Reinforces Benefits of Access to a 401(k)

The results of a new study make it clear that having access to a 401(k) plan is critical in helping workers get on a path to having a secure retirement.

Workers age 50 or older who have access to a 401(k) plan have saved six times more for retirement than those without access, according to findings from the 2017 Wells Fargo Retirement Study, which shows that workers in this age cohort have saved a median of $300,000 compared to $50,000 for workers without access.

Having access has not only helped workers with saving, but the large majority of survey respondents admit that they would not have saved as much without access. The survey shows that 89% of workers who have access to savings plans indicate they would not have saved as much for retirement if they did not have a 401(k) plan.

In addition, 88% of those with access to a 401(k) are contributing and they are more likely to be consistent savers than those who do not have access (48% versus 33%). They are also more likely to have started at a younger age. People with 401(k) plans, on average, started saving for retirement at age 28 versus age 31 for those without access. In addition, consistent savers started saving at a mean age of 25, compared to 33 for those who have not saved consistently.

Not surprisingly, consistent savers who started saving at the beginning of their careers have a substantial advantage versus those who did not, with the study showing median balances of $200,000 versus $50,000. The gap is even larger among retirees ($400,000 versus $50,000 median).

Despite the success of 401(k) plans in making retirement planning easier for workers, the findings show that many want help making investment choices. Specifically, 56% of workers who have a 401(k) plan would like more help with their plans to ensure they are making the best choices for their retirement. This finding is even more prevalent among younger workers in their 30s, where 67% report they would like more help.

When asked what they would do with their retirement savings if they changed jobs, 63% of respondents said they would keep their money in a 401(k) plan. Among this group, 44% said they would roll their money over to their new employer’s plan, while 19% said they would leave their money in their prior 401(k) plan. Three in 10 respondents said they would roll their 401(k) plan into an IRA.

“The great news here is that the majority of workers would keep their money in a tax-deferred vehicle upon changing jobs; this tells us they know better than to just cash out, which would have significant tax implications,” says Joe Ready, head of Wells Fargo Institutional Retirement and Trust.

Upon retirement, 81% of workers with access to a 401(k) plan would prefer to stay in their plans if they could just make withdrawals from it during retirement.

“Continuing to use the 401(k) in retirement can be another option, and it doesn’t surprise me that people see the value this type of plan delivers ─ access to institutionally priced investments, independent fiduciary oversight, and tools and education that are designed to help them achieve their goals,” adds Ready. “As a retirement plan industry, we’ve reached an inflection point and should take this as a call to do even more to help people not just to the point of retirement, but also through retirement.”

Increasing Optimism

In a sign of increasing optimism and perhaps because of recent stock market gains, the percentage of workers who say they will “have enough savings to live on comfortably” throughout retirement increased to 62%, compared to 52% in 2016. In addition, less than half of workers (46%) believe they will need to work until at least age 70, which is down slightly from last year’s 50% level.

Nevertheless, 38% of workers still do not believe they will reach their savings targets and 48% believe their “standard of living will fall.” Not surprisingly, health care costs remains one of the biggest obstacles, with 61% of workers saying these costs prevent them from saving more for retirement and 50% of retirees report they have spent more than expected on health care.

Harris Poll conducted the survey on behalf of Wells Fargo, which included 1,259 telephone interviews between July 6 and Aug. 8, 2017, with 1,006 workers age 30 or older and 253 retirees.

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