Those Not Saving in 401(k) Challenged by Day-to-Day Finances

Everyday money matters are dramatically impacting the lives and retirement saving efforts of Americans, according to a survey from Schwab Retirement Plan Services.

The nationwide survey of 1,000 workers with access to a 401(k) plan—half of whom are actively contributing to it (“savers”) and half of whom are not (“non-savers”)—reveals that 60% of savers and 53% of non-savers who have at one time contributed to a 401(k) say their 401(k) is their largest or only source of retirement savings.

Workers in the survey identified a number of sources of financial stress, with non-savers naming present-day challenges in far greater numbers than their saving peers. More than twice as many non-savers as savers say keeping up with monthly expenses is a significant source of stress (42% compared to 20%). Forty-five percent of non-savers say they either have no money left over or are actually behind on bills at the end of each month, compared to 23% of 401(k)-savers who say the same.

When asked about their primary obstacles to saving for retirement, non-savers focused on immediate concerns including: needing to pay basic monthly bills (46%), paying off credit card debt (42%), covering unexpected expenses like home repairs (34%), and paying medical bills (33%). Savers have similar concerns, but generally in smaller numbers: unexpected expenses (36%), monthly bills (31%), being unwilling to sacrifice things that add to their quality of life (29%), and credit card debt (29%) top their list.

In hindsight, non-savers recognize the impact that debt is having on their ability to save. When asked to select the one thing they would change about the way they managed their finances in the past, 26% of non-savers say they would have accumulated less debt, compared to just 13% of savers.

The survey reveals a substantial gap in the way 401(k)-savers and non-savers perceive their overall financial health. Eighty-five percent of savers say they are in pretty good shape or very good shape financially, compared to 64% of non-savers.

Two-thirds (66%) of savers say they have increased their 401(k) contribution percentage in the past two years, and 62% say they believe they are saving enough to retire when they want to.

Outside of 401(k) plans, savings accounts and IRAs are the most common methods of saving for retirement. Fifty-six percent of savers have a savings account, and 47% have an individual retirement account (IRA). Forty-four percent of non-savers have a savings account, and 23% have an IRA. However, more than one-quarter of non-savers (26%) are not currently saving or investing for retirement at all.

The majority of both groups—86% of savers and 77% of non-savers—would welcome a financial wellness program from their employer, which could provide education, tools and resources to help with their overall financial health. However, when asked if they think their current financial situation warrants professional financial advice, 40% of savers and 44% of non-savers say no, even though both groups say their investment confidence would grow dramatically with the help of a financial professional.

Fifty percent of savers are very/extremely confident making investment decisions on their own, but 76% say they would be very/extremely confident if they had the help of a financial professional. Similarly, 47% of non-savers are very/extremely confident making investment decisions on their own, but 70% say they would be very/extremely confident if they had the help of a financial professional.

“It’s important for people to understand that whether you have $1,000 or $100,000, your wealth merits help to maximize its potential,” says Catherine Golladay, senior vice president, 401(k) Participant Services and Administration at Schwab Retirement Plan Services. “A number of those we surveyed, especially the non-savers, say they’re uncomfortable asking for help with their finances.”

Savers and non-savers alike are self-reliant when it comes to funding their retirement. Eighty-nine percent of savers and 79% of non-savers say they’re relying on themselves or their spouses for their income in retirement. Social Security isn’t believed to be a sure thing. Fifty-two percent of savers and 50% of non-savers believe they will receive Social Security benefits in retirement. Some 21% and 23%, respectively, say they will not, and 27% of both groups are unsure.

Savers and non-savers alike spent more time researching their options the last time they bought a car (4 and 3.7 hours, respectively), took a vacation (3.7 and 3.3 hours) or purchased a home appliance (2.9 and 2.7 hours) than they did making a 401(k) investment choice (2.5 hours for both groups). Even though 401(k) investment fees can have a dramatic impact on retirement savings, both savers and non-savers say fees are less likely to influence their choice of 401(k) investments than are their choice of a credit card, online shopping destination, ATM or airline.

Full survey results can be found here.