Employees with access to a 401(k)-type plan amass a significantly bigger nest egg than those lacking access: $87,000 median saved for retirement vs. $10,000 for those without access, according to Wells Fargo.
Yet, 58% of 401(k) plan participants would still like more help with their plan to ensure they are making the best investment choices for their retirement.
In the run-up to National Save for Retirement Week (Oct. 17–21), the “2016 Wells Fargo Retirement Study” found that 59% of workers focused more on avoiding loss than maximizing growth in their retirement investments, with little variation across age groups.
“This relatively conservative approach to investing among younger people may reflect an emotional reaction of day-to-day market volatility,” Joe Ready, head of Wells Fargo Institutional Retirement and Trust, said in a statement. “However, it’s important not to have a knee-jerk reaction.”
What Your Peers Are Reading
Ready said it was also important to make informed decisions about investing in a way that allowed younger workers to use time, their biggest asset, to accelerate their savings growth potential.
The study presented the following illustration of the growth for $10,000 invested in two different ways from Jan. 1, 1976, through Sept. 30, 2016:
• A portfolio allocation of 70% stocks and 30% bonds would have grown to $581,295. An allocation of 30% stocks and 70% bonds would have grown to $336,715.
• “This simple example makes it clear that choosing the right mix of investments relative to your time horizon and risk tolerance is important when it comes to being well-prepared for retirement,” Ready said.
Harris Poll conducted telephone interviews on Wells Fargo’s behalf with 1,003 working Americans and 250 retired Americans from mid-July through mid-August. Working participants were age 30 or older and working full-time (or at least 20 hours if they are working part-time) or were self-employed. Retired Americans self-identified as retired regardless of age. Both groups were the primary or joint financial decision maker for their household.
According to the survey, workers 30 or older have saved a median of $40,000 toward a median goal of $500,000. Thirty-four percent have consistently saved for retirement, and these have put away a median $150,000, compared with a $20,000 median for those who have not been consistent.
In addition, consistent savers began saving at age 25 versus age 33 for non-consistent ones.
Wells Fargo said access to a 401(k) plan may have played a role in these savings patterns and balances, as 70% of consistent savers also had access to such a plan, compared with 51% of non-consistent savers.
Higher household income leads to larger amounts saved for retirement and being closer to attaining a savings target, the survey found. Still, even participants with high income had a sizeable gap between what they had saved and what they thought they would need for retirement:
• Those earning $50,000–75,000 had saved $20,000 toward a $500,000 goal.
• Those earning $75,000–100,000 had saved $30,000 toward a $500,000 goal.