Employees are changing financial habits and want advice

Inflation is now the top obstacle to saving for a comfortable retirement, according to a new survey from Schwab Retirement Plan Services. The annual nationwide survey of 401(k) plan participants finds that workers rank inflation (45%) ahead of other obstacles including keeping up with monthly expenses (35%), stock market volatility (33%), and unexpected expenses (33%).

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Catherine Golladay, Head of Schwab Workplace Financial Services (Photo: Business Wire)

“Workers have been through a lot over the past two years and it’s only natural that recent economic and geopolitical turbulence has continued to fuel financial concerns,” said Catherine Golladay, Head of Schwab Workplace Financial Services. “While plan participants can’t control inflation or the markets, the good news is they are taking steps to manage their finances with an eye to the future.”

Workers believe they’ll need to save an average of $1.7 million for retirement, down from $1.9 million reported in last year’s survey, and just under half (47%) feel they are very likely to reach their retirement savings goal. They expect the 401(k) to be their primary financial resource in retirement, providing 37% of income, followed by Social Security (17% of income).

Workers change how they save, spend and invest

In response to rising costs and market volatility, 79% of workers are changing their saving and spending habits, while 44% have altered their 401(k) investments.

Workers are cutting spending by reducing the number of purchases they make (34%), buying cheaper products (32%), and paying off debt more slowly (21%). Despite the belt tightening, workers are still saving less (33%) and spending more in general (30%). They are saving less for emergencies (20%), investing less outside their 401(k)s (18%) and contributing less to their 401(k)s (15%).

Almost one quarter of workers say they plan to retire later as a result of the pandemic. One third of plan participants do not know how long their savings are likely to last in retirement, and the two thirds who offered an estimate say they expect their retirement savings to last 23 years on average.

Employers address financial stress among workers

Financial strain continues to take a toll on mental health. Only 15% of employees say they have not been under financial stress, and more than a quarter of respondents (26%) say stress about their financial situation has impacted their ability to do their job in the past year, similar to last year’s survey findings.

“Many workers say their employers have helped them manage financial stress in the past year,” said Golladay. “With talent management top of mind for so many employers, demonstrating support for employees through tough times plays a key role in both loyalty and recruitment.”

The majority of employers (60%) took action to help workers manage financial stress in the form of increased pay (32%), increased 401(k) match (23%), and additional bonus (20%). Some also decreased hours to allow for better work-life balance (11%).

Advice increases worker confidence

Most workers say their financial situation warrants professional advice (60%). More than half (55%) say they would be very confident making 401(k) investment decisions with the help of a financial professional, compared to just 38% who say they are very confident making 401(k) investment decisions on their own.

Specifically, plan participants want help with:

• How to invest their 401(k) account (43%)
• Calculating how much money to save for retirement (42%)
• Creating an income stream in retirement (38%)
• Determining at what age they can afford to retire (36%)
• Anticipating taxes in retirement (32%)

However, workers see barriers to accessing advice through their workplace plan. They cite cost (23%), advice limitations (22%), lack of awareness (19%), and confidentiality concerns (18%) among the reasons they wouldn’t seek financial advice via their employer.

“Workers are facing an array of economic challenges that are driving their demand for financial advice. Employers can help by debunking misconceptions about financial advice available through the workplace,” said Golladay. “Many employers offer different levels of advice at no additional cost or low cost, and workers tell us making 401(k) investment decisions with the help of a financial professional would make them more confident, which is one of the most important factors in their financial well-being.”

About the survey

This online survey of U.S. 401(k) participants was conducted by Logica Research for Schwab Retirement Plan Services, Inc. Logica Research is neither affiliated with, nor employed by, Schwab Retirement Plan Services, Inc. A total of 1,000 plan participants completed the survey. Survey respondents were actively employed by companies with at least 25 employees, were 401(k) plan participants and were 21-70 years old. Survey respondents were not asked to indicate whether they had 401(k) accounts with Schwab Retirement Plan Services, Inc. All data is self-reported by study participants and is not verified or validated. Respondents participated in the study between April 4 and April 19, 2022. Detailed results can be found here.

About Charles Schwab

At Charles Schwab, we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity.

More information is available at aboutschwab.com. Follow us on Twitter, Facebook, YouTube, and LinkedIn.

Disclosures

Schwab Retirement Plan Services, Inc. and Charles Schwab & Co., Inc. are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation. Schwab Retirement Plan Services, Inc. provides recordkeeping and related services with respect to retirement plans. Brokerage products and services are offered by Charles Schwab & Co., Inc.

Workplace Financial Services is a business enterprise which offers products and services through Schwab Retirement Plan Services, Inc.; Schwab Stock Plan Services; and Compliance Solutions. Schwab Retirement Plan Services, Inc., provides recordkeeping and related services with respect to retirement plans. Schwab Stock Plan Services is a division of Charles Schwab & Co., Inc. providing equity compensation plan services and brokerage solutions for corporate clients. Compliance Solutions is comprised of Schwab Designated Brokerage Services (DBS), a division of Charles Schwab & Co., Inc. DBS provides brokerage solutions for corporate clients who monitor their employees' securities activity. Schwab Retirement Plan Services, Inc., and Charles Schwab & Co., Inc. are separate but affiliated entities, and each is a subsidiary of The Charles Schwab Corporation.

Through its operating subsidiaries, The Charles Schwab Corporation (NYSE: SCHW) provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; compliance and trade monitoring solutions; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank, SSB (member FDIC and an Equal Housing Lender), provides banking and lending services and products. More information is available at www.schwab.com and www.aboutschwab.com.

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© 2022 Schwab Retirement Plan Services, Inc.

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