Retirement goal setting has become part of the lexicon for astute 403(b) and 401(k) plan participants. Nationwide, participants are aware they should be saving more for retirement. The old retirement goal setting was structured to assemble an asset of $1 million. However, that is no longer the case. The benchmark amount most retirement savers would strive to have, has increased significantly. Now, most 401(k) plan participants believe they must save $1.9 million, according to a survey from Schwab Retirement Plan Services cited in Yahoo! Finance.
That savings target is up from $1.7 million in 2019. However, 401(k) plan participants’ confidence has increased along with their savings goal. More than half (53%) of those surveyed said they’re likely to achieve their retirement savings goals, up 16% from a year ago amid the uncertainty and turmoil of the Covid-19 pandemic. Retirement goal setting and deferring did survive 2020! But the stress of the past year-plus has illuminated the importance of providing valuable financial wellness and advice to 401(k) plan participants.
Despite their confidence, 401(k) plan participants admit to having concerns, particularly when it comes to navigating their finances on their own. Indeed, 61% said they needed professional advice from a financial advisor. Specifically, they wanted help calculating a retirement savings goal, investing, creating income, and planning for taxes in retirement. It is good to learn that participants are getting back to the fundamentals of retirement goal setting.
The Schwab survey was conducted online by Logica research, which interviewed 1,000 401(k) plan participants ages 21 to 70 to gauge their confidence levels for achieving their retirement goals.
So what are the real-world applications for this data? Employees who want to save more for retirement to reach that lofty $1.9 million goal may have several options available to them. A majority may have access to a 401(k) or 403(b) plan, which offers tax advantages and potentially, employer matching contributions to help them build a nest egg throughout their career. Of course, IRS annual contributions for these plans cap out at $19,500 (with $6,500 in catch-up contributions permitted for those age 50 and over), so employees keen to save over and above that amount might consider an individual retirement account (IRA), which allows additional annual savings of $6,000 ($7,000 for those over 50).
Now that 401(k) plan participants recognize that they’ll need nearly double the original $1 million retirement savings benchmark, employers have an opportunity to help them achieve that goal. Offering access to financial wellness programs and professional advice from a trusted financial advisor can help, as can educating them on the benefits of savings vehicles such as employer-sponsored plans and IRAs. Good savings habits built now can go a long way toward helping improve retirement outcomes for the future.