When it comes to using a 401(k), a majority of Americans do not discern a difference between saving and investing, according to new research from Schwab Retirement Plan Service.
The nationwide survey of 1,000 401(k) plan participants revealed that two-thirds (65 percent) of those surveyed say participating in a 401(k) plan was their first experience with investing -- yet when it comes to using a 401(k), 64 percent view themselves as savers rather than investors.
The survey, in fact, indicated that outside of a 401(k), participants are more likely to use a savings account to prepare for retirement than any type of investment account.
“It’s important for anyone with a 401(k) plan to understand that they’re already an investor, whether they realize it or not,” said Steve Anderson, president, Schwab Retirement Plan Services, in a prepared statement. “Shifting your mindset from ‘saving for retirement’ towards ‘investing for retirement’ can help you to better understand that you are participating in the market when you contribute to a 401(k), and ultimately better help you reach your goals.”
The survey also found that more than half (58 percent) say the 401(k) savings plan is their largest source of retirement savings, but many are not investing enough to reach the $1.7 million goal they believe is needed for retirement.
Half of those surveyed (51 percent) are contributing 10 percent or less of their salary to their 401(k), with the average annual contribution totaling $8,788. Schwab explained that this might be a good start, but not for those who started investing later in life.
The survey suggests that if you start investing 10 percent to 15 percent of your salary each year when you are in your 20s, you will likely be able to retire comfortably. But if you don’t start until age 45 or older, you might need to invest as much as 35 percent of your salary annually, which would be a significant challenge for most workers, it acknowledged.
Many stuck with the contribution amount they started out with, with less than half saying they have increased their contribution percentage in the past two years, the survey found. Fifty-five percent of respondents, it said, chose a percentage they were comfortable with, 36 percent contributed as much as their employer matched and 8 percent were automatically enrolled at a default percentage chosen by their employer.
Among those who were auto-enrolled into their 401(k) plan, 33 percent have never increased their contribution rate and 44 percent have never changed their investment choices, the survey said.
A majority of respondents (95 percent) acknowledged that they would feel confident in making the right financial decisions with professional help, yet just half of participants (52 percent) feel their situation actually warrants financial advice.
Other notable findings include: The vast majority of participants (87 percent) consider a 401(k) a must-have benefit. Only health insurance ranked higher with (89 percent). And one quarter (26 percent) of participants have taken a loan from their 401(k). Of those, more than half have taken multiple loans.