Inflation is weakening 401(k) savings ability for millions of Americans, says Schwab

Despite the challenging conditions, workers are trying to keep on top of retirement savings.

When household budgets are squeezed, it can be hard to prioritize finances for the future when bills need to be paid today.

But such is the importance placed on retirement savings by millions of working Americans that continuing to make contributions to their 401(k) remains a priority even as stubborn inflation is making it harder to make ends meet.

A new survey from Charles Schwab shows that 62% of respondents are finding inflation a challenge to saving for a comfortable retirement (up from 45% last year) while 42% see market volatility as an obstacle (up from 33% last year).

Spending and saving habits are being affected by these two major factors for almost 8 in 10 poll participants, and more than a third say they may need to delay retirement as a result, especially given the $1.8 million that respondents believe they need to save for a comfortable retirement.

“When inflation persists for an extended period of time, workers are inevitably going to feel a deeper impact on their wallets,” Brian Bender, head of Schwab Workplace Financial Services, said in a statement. “While many workers are trying to cut back on spending, some costs are unavoidable and certain areas of their finances have taken a hit.”

401(K) IS A MUST-HAVE BENEFIT

The importance of a 401(k) plan is clear, with 88% of respondents saying it is a must-have benefit when changing employer and three-quarters saying they would refuse a job that didn’t offer this as a benefit.

“Placing such a high priority on their 401(k) is not surprising since it is their primary retirement resource, with workers counting on it to deliver 40% of their retirement income,” said Marci Stewart, Director, Communication Consulting and Participant Education for Schwab Workplace Financial Services. “That’s double what workers expect from the next closest source, which is Social Security at 20% of retirement income.”

But getting help is vital for most respondents, with just 27% saying they are confident managing their 401(k) on their own while 73% would like personalized advice from a professional.

Top topics where advice is required are:

calculating how much to save for retirement (41%)
how to invest their 401(k) (40%)
determining when they can afford to retire (38%)
creating a retirement income stream (36%)

SECURE 2.0 INFO

Workers are keen to know how new regulatory and legislative changes like the SECURE 2.0 Act affect their retirement plan.

More than half of respondents have heard of SECURE 2.0 which includes an increased age for required minimum distributions and the increased 401(k) catch-up contribution limits starting in 2025 for those aged 60 to 63.

“It’s encouraging to see that many workers are in-tune with the evolving rules and regulations surrounding their retirement plans,” Stewart said. “By understanding what matters to employees, employers can drive engagement as they fine tune their benefit offerings to optimize recruitment and retention.”