Many Lack Confidence to Manage Retirement Savings

Most employees accept responsibility for financing retirement and rely on 401(k)s to get there, but many lack confidence in their ability to manage their retirement accounts effectively.

A new nationwide survey of 401(k) participants from Schwab Retirement Plan Services shows a high level of self-reliance among respondents. Roughly nine in 10 (89%) say they are counting on themselves for the money to support their retirement, and just 5% expect to rely mostly on the government for financial help after they stop working full time.

This self-reliance is fueled by anticipated use of 401(k) plans. A vast majority of respondents (61%) report the 401(k) is their only or largest source of retirement savings. More than half of respondents (55%) have increased their savings rate in the last two years, and most (70%) say their 401(k) is in better shape now than ever before.

However, the survey revealed that saving in a 401(k) is not enough to ensure confidence for many participants. For example:

  • More than half (52%) find explanations of their 401(k) investments more confusing than explanations of their health care benefits (48%);
  • Fifty-seven percent wish there was an easier way to figure out how to choose the right 401(k) investments; and
  • Nearly half (46%) are unsure of what their best investment options are, and one-third (34%) feel stressed regarding allocating their 401(k) dollars correctly.

The survey also found many 401(k) plans offer some type of professional advice, which can be vital in helping people take better control of their investments. Of those surveyed, 61% want personalized investment advice for their 401(k). Participants expressed a desire for guidance on everything from asset allocation to risk tolerance and retirement income planning.

Investment confidence was found to nearly double when workers had the help of a financial professional. Approximately one-third (32%) of respondents expressed confidence in making the right 401(k) investment choices based on their own ability, compared with 61% if they also had the help of a financial professional.

“Getting more workers engaged in professional 401(k) advice should be a top priority for employers. We’ve seen the positive impact it can have on both behaviors and outcomes,” said Steve Anderson, head of Schwab Retirement Plan Services. “At Schwab Retirement Plan Services, participants who used third-party, professional 401(k) advice tended to increase their savings rate, were better diversified and stayed the course in their investing decisions.”

Other findings from the survey showed respondents are engaged and place a priority on their 401(k):

  • Given a choice about how to use a $5,000 bonus, nearly two-thirds (64%) would save it in their 401(k) rather than take the cash now. Forty-eight percent immediately chose the 401(k) route, and an additional 16% chose the 401(k) after tax consequences were explained;
  • Seventy-four percent of respondents said their 401(k)s have recovered from the financial crisis about as fast or even faster than expected; and
  • Nearly three-quarters (74%) would rather pay low investment fees for index funds than pay higher fees for actively managed funds that could potentially outperform the market but also carry greater risk.

The online survey of U.S. 401(k) participants was conducted between June 5 and June 11, by Koski Research for Schwab Retirement Plan Services Inc. The survey is based on 1,004 interviews. Respondents worked for companies with at least 25 employees, were current contributors to their 401(k) plans and were 25 to 75 years old.

Findings from the survey can be found here.