The way people use their workplace retirement plans may be contributing to the nation's wealth divide, a new survey indicates.
While many workers continue to build up 401(k) savings, others are so stressed with financial obligations such as credit card debt they can't put any money away, according to a study comparing U.S. workers who contribute to a 401(k) plan to those who do not by San Francisco-based Schwab Retirement Plan Services.
About twice as many non-savers than savers said that they were stressed by keeping up with monthly expenses. Monthly expenses were a challenge for 42 percent of the non-savers, compared with 20 percent of those contributing to a 401(k).
Nearly half of the non-savers, 45 percent, said they have no money left over or are behind on bills at the end of every month, compared to 23 percent of the savers. More than a quarter of the non-savers, 26 percent, aren’t currently saving for retirement at all.
Nevertheless, a majority of the respondents in the study feel like they’re in good financial shape, with 85 percent of savers and 64 percent of non-savers describing their financial health as “pretty good” or “very good.”
Among both savers and non-savers, the 401(k) plan remains the primary source of retirement savings for most U.S. workers. Three-fifths of those saving in a 401(k) say that their workplace plan is their primary retirement savings vehicle, compared to 53 percent of those who have at one time had access to a 401(k) but are not currently contributing.
Outside of 401(k) plans, many respondents from both groups were also saving in IRAs and savings accounts. While bank savings accounts were employed by 56 percent of respondents who contributed to a 401(k) and by 44 percent of those who did not, savers and non-savers diverged significantly when it came to IRAs.
According to the study, 47 percent of the savers were also contributing to an IRA, compared to 23 percent of the non-savers.
A quarter of those not currently contributing to a 401(k) say that they aren’t saving or investing for retirement at all right now. While struggles with monthly bills were the most commonly cited reason for not saving, named by 46 percent of the non-savers, 42 percent named credit card debt and around one-third cited medical bills and unexpected expenses like home repairs.
The study found that many workers saving in 401(k) plans are also incrementally saving more, with 66 percent reporting an increase in their contribution percentage over the past two years.