Only about half of workers with 401(k) plans said they feel confident they’ll reach their retirement savings goals, according to a new survey from Charles Schwab.
Many said they expect their 401(k) plans to be their primary retirement income source, making up 37% of what they’ll receive in retirement, followed by Social Security, which they expect to account for 17% of their income, according to the survey of 1,000 401(k) plan participants.
Inflation is the latest obstacle Americans face when saving enough for retirement. In June, the rate hit a 41-year high of 9.1%, and retirees and workers alike are seeing it reflected in their grocery, utility and gas prices. Although a higher inflation rate could be good news for Social Security recipients – benefit checks are tied to the consumer price index – it could spell trouble for those who are borrowing money for homes and cars, or trying to strategize how they’ll withdraw from their retirement portfolio.
Older workers are also at risk of earning less in inflation-adjusted dollars because of the rising rate. Workers of all ages have seen pay raises, but the wage growth of individuals 55 and up is eroded by inflation, a recent Schwartz Center for Economic Policy Analysis report found. In fact, when adjusted for inflation, the wage growth rates for this demographic as well as mid-career workers were in the negative, while wage growth for workers 16 to 34 years old saw inflation-adjusted wage growth increase.
More than four in 10 people said they have changed their 401(k) investments as a result of rising costs and market volatility, and 79% said they are changing the way they save and spend, the Schwab survey found. In an effort to combat these rising costs, the 401(k) participants in Schwab’s survey said they are reducing the number of purchases they make, buying cheaper products and paying off debt more slowly.
About a quarter of respondents said they intended to retire later because of the pandemic. A third said they don’t know how long their money will last in retirement, and another two-thirds said they expect their savings to stretch an average of 23 years.
Many plan participants said they could use more help with their retirement savings. The top three areas respondents wanted assistance with included: knowing how to invest their 401(k) plan portfolio, estimating how much they’ll need to save for their retirements and creating an income stream for the future.
“Many employers offer different levels of advice at no additional cost or low cost,” said Catherine Golladay, head of Schwab Workplace Financial Services. “Workers tell us making 401(k) investments 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.”