Americans participating in a workplace retirement plan say they will need to have saved $1.3 million before they retire, but only 30% believe they will reach the $1 million milestone, according to the Schroders US Retirement Survey, released Tuesday.
Forty-eight percent of respondents said they will have less than $500,000 saved before retiring, and 26% expect to have less than $250,000. Faced with this shortfall, most plan participants expressed at least slight concern about outliving their assets in retirement.
Among retirement plan participants surveyed, 69% said the plan is their most important retirement asset. Only 20% said they use their plan’s auto-escalation feature, which automatically increases their contribution percentage at set intervals.
Not only that, 19% reported that they have decreased the percentage of their income they contribute to the plan, with 61% of them having done so in the past two years. A further 17% of plan participants said they have borrowed money from their plan.
Such borrowers gave these reasons for doing so:
- Paying for unforeseen family or personal emergencies — 29%
- Reducing credit card or other debt — 25%
- Keeping up with increasing cost of living — 22%
- Buying a home — 15%
- Paying for medical care — 14%
“It’s difficult to focus on saving for retirement amid a seemingly endless supply of competing financial goals and obligations,” Deb Boyden, head of U.S. defined contribution at Schroders, said in a statement. “[But] if you don’t stay on track with saving in your workplace retirement plan, it’s unlikely you’ll be able to retire on your own terms.”
Sixty-five percent of plan participants reported that they fret about money too much, and 56% worried that financial stress will negatively affect their health. Fifty-nine percent of respondents wished that they received more guidance from their employer on how to invest their retirement plan assets.
8 Acre Perspective conducted the survey from March 25 to April 17 among 1,500 U.S. investors ages 29 to 79, including 602 currently participating in a workplace retirement plan.
Cash Comes With Opportunity Cost
Thirty-one percent of plan participants in the survey acknowledged that they do not know how their retirement assets are allocated.
Among those who said they do know, their allocations across all retirement investments (including workplace plans, IRAs or other retirement accounts) suggest that loss aversion may be shaping their decision making.
Here's a breakdown of how their retirement investments are allocated:
- 31% to equities
- 23% to cash
- 16% to fixed income
- 14% to target date funds
- 16% to other
Asked their reasons for allocating to cash, 53% cited safety, 47% investment diversification and 23% uncertainty about how best to invest cash holdings.
“For most plan participants, saving for retirement is the quintessential long-term goal,” Boyden said. “If you’re five or more years away from retiring, a modest amount of cash could help you take advantage of tactical investment opportunities, but holding one-quarter of your portfolio in cash comes with a steep opportunity cost.”
Plan participants can accumulate wealth more efficiently and narrow any savings gap by shifting their savings into investments designed to deliver better returns than cash while minimizing market downturns, she said.
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