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People prioritise wealth over health, says Schwab survey

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A new survey illustrates the vital role of 401(k) plans in helping workers save for retirement, but also identifies obstacles to saving effectively and a strong desire among participants for professional help in choosing the right investments.

There is also widespread belief that retirement should be a major issue discussed by the US presidential candidates in the upcoming debates.
 
The nationwide survey of 1,000 401(k) plan participants, commissioned by Schwab Retirement Plan Services, finds that a 401(k) is viewed as an essential workplace benefit and that people are taking saving for retirement very seriously in much the same way they strive to manage their health. In fact, 90 per cent of respondents said they would think twice about taking a job if the company did not offer a 401(k) plan. The survey also found:
 
• More than two-thirds (68 per cent) consider making the best 401(k) investment choices a key priority – even more so than staying in shape (59 per cent).
 
• 73 per cent would rather have their 401(k) balance grow by 15 per cent this year than lose 15 pounds.
 
• Participants pay more attention to 401(k) investment fees (64 per cent) than ATM fees (60 per cent), airline baggage fees (50 per cent) or gym sign-up fees (49 per cent).
 
“When it comes to retirement, there’s been a significant shift of responsibility from employer to employee over the past 30 years, making the 401(k) plan a critical part of the retirement system,” says Steve Anderson (pictured), head of Schwab Retirement Plan Services. “Our survey found only one in five participants would be confident in their ability to save for retirement without a 401(k) plan. In fact, participants worry as much about having enough money to enjoy retirement as they do about being healthy enough to enjoy retirement.”
 
While it’s clear that participants recognise the importance of saving in a 401(k) plan, survey respondents also note that saving can be difficult and cite a number of concerns and competing priorities that interfere with their ability to meet retirement goals.
 
More than one-third (35 per cent) say they aren’t saving more for tomorrow because they are unwilling to sacrifice their quality of life today – expenditures like dinners out and vacations. Other top obstacles to retirement saving include paying for unexpected expenses (31 per cent), covering basic monthly bills (31 per cent), paying off credit card debt (24 per cent) and saving for education (22 per cent). Other key findings include:
 
• While 90 per cent know what their ideal credit score should be, only 58 per cent know how much they should save for a comfortable retirement.
 
• Nearly half (47 per cent) say that materials explaining their 401(k) plan investments are more confusing than materials explaining their health & medical benefits.
 
• Roughly three in ten (29 per cent) have either decreased or not made any changes to their 401(k) savings rate in the last two years.
 
“Today, many employers are designing their 401(k) plans to better address savings obstacles and help their employees take more control of their investments,” says Anderson. “These employers are at the forefront, using automatic enrolment, automatic savings rate increases and automatic investment advice to help their employees prepare for retirement. The industry needs to focus more on plan design features like these if we are to further our goal of improving participant outcomes.”
 
According to the survey, professional 401(k) investment advice is something that participants say they value, even though relatively few are actually using it. For example:
 
• 67 per cent want personalized investment advice for their 401(k) and 79 per cent say they are likely to seek out professional help for making the best 401(k) investment choices; and
 
• 73 per cent say they would be very or extremely confident in their ability to make the right investment decisions with the help of a financial professional, versus only 44 per cent who would feel that same level of confidence on their own;
 
• Yet only 12 per cent of participants questioned are currently getting professional advice for their 401(k), even though nearly half (49 per cent) say they’d expect better performance if they used advice.
 
“Most participants want 401(k) advice, but whether because of inertia or discomfort, many don’t take that first step of asking for help,” says Catherine Golladay, vice president of participant services and administration at Schwab Retirement Plan Services. “We’ve observed that when advice is built into the plan so that participants start off with it and are free to opt out if they wish, nearly 86 per cent stick with it.1 That can make a big difference.” Research from Morningstar Associates, LLC suggests that participants receiving advice as part of a managed account service could end up with nearly 40 per cent more income in retirement.
 
While the survey found that hardly any respondents expect to rely primarily on the government for income in retirement, they do believe the retirement system is a critical national priority and that politicians should pay attention to retirement issues.
 
• Nine in ten say they’ll rely on themselves for the money needed to retire.
 
• Almost everyone surveyed (97 per cent) believes Americans are not saving enough for a comfortable retirement.
 
• When asked to grade politicians on their efforts to help Americans save for retirement, 89 per cent gave them a C or less; 29 per cent actually gave them an F.
 
• Despite all the issues America faces, 69 per cent say that Americans’ ability to save for a comfortable retirement should be a major public policy focus and the same per centage (69 per cent) want it to be a major issue addressed in the upcoming presidential debates.
 
• Nearly 60 per cent (59 per cent) say their 401(k) is their only or largest source of retirement savings.
 
• One quarter of participants (25 per cent) have taken a loan from their 401(k), mostly to pay for a down payment on a house, to make home improvements or to cover everyday bills.
 
• Almost all (91 per cent) participants surveyed receive a company match and 87 per cent of those who do contribute enough to get the full company match.

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