The workforce is setting a lofty retirement savings goal: $1.7 million. Though that’s the figure most employees think they need to retire comfortably, according to Charles Schwab research, many aren’t investing enough to reach it, giving employers a chance to help out.
With workplace retirement plans playing such a vital role in financial preparations, employers have an opportunity to offer tools and resources to foster workers’ financial well-being, including access to advice and managed account services.
Currently, employees seem to be taking a “set it and forget it” approach to their 401(k)s, with less than half saying they have increased their contribution percentage in the past two years, according to a recent report from Charles Schwab. When asked how much they decided to contribute to their plan initially, 55% say they chose a percentage they were comfortable with, 36% contributed as much as their employer matched and 8% were automatically enrolled at a default percentage chosen by their employer.
But a bigger obstacle is that a majority of 401(k) participants view themselves as savers rather than investors.
“It’s important for anyone with a 401(k) plan to understand that they’re already an investor, whether they realize it or not,” says Steve Anderson, president of Schwab Retirement Plan Services. “Shifting your mindset from ‘saving for retirement’ toward ‘investing for retirement’ can help you to better understand that you are participating in the market when you contribute to a 401(k), and ultimately better help you reach your goals.”
Employers can help by providing or guiding participants to tools and services to better help understand their savings options, experts say.
Employees say they would feel confident in making the right financial decisions with professional help, the report noted, yet just half of participants (52%) feel their situation actually warrants financial advice.
Specific areas where employees say they would like help include determining the right retirement age, calculating how much they’ll need in retirement, 401(k) investment advice and figuring how what their expenses will be in retirement.
“Any effort to set aside money for the future is worthwhile,” says Catherine Golladay, chief operating officer at Schwab Retirement Plan Services. For example, she notes money intended for retirement has far more growth potential if it’s invested through an IRA or HSA than if it’s placed in a regular savings account.
“Having access to more investment education could help participants get more out of their investments, both inside and beyond their 401(k) accounts,” she adds.
The majority of employees say they leverage and find value in web-based financial tools, with just over half saying they have used an online retirement calculator, according to the report. Of those who have used one, 71% felt encouraged and wanted to learn more, and 61% took positive actions related to their finances.
After using an online retirement calculator, 48% of the survey respondents said they increased their 401(k) contributions, 29% changed their spending habits and 28% accessed additional online advice.
“It’s so encouraging to see people using online resources to take their financial pulse, and even more encouraging that many are taking action,” Golladay says. “We believe everyone can benefit from professional financial advice, and by offering it at work, employers can help move their employees from saving to investing to true financial ownership.”
