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Most Americans will rely on their savings to fund their retirement, but financial stress is making it difficult for many workers to save.
A new CNBC Your Money Poll found that 74% of Americans feel financially stressed, up from 70% in an April survey. About 37% of respondents said they are “very stressed” about their personal finances, compared to just 30% in April.
The new report surveyed more than 4,300 U.S. adults in late August. The biggest stressors remained the same as in April: inflation, rising interest rates and a lack of savings.
How Employees Fund 401(k) Plans
These financial burdens also make it more difficult for many employees to finance retirement planning.
About 2,700 respondents to the CNBC Your Money Survey are employed full-time or part-time. Of this group, 4 in 10 workers, 41%, contribute no money at all to a 401(k) or employer-sponsored plan. They are missing a significant opportunity to improve their financial security for the future, experts say.
Still, the survey found that nearly six in 10 workers, or 57%, contribute to a 401(k) or company-based savings account.
The CNBC Your Money survey found that those who contribute fund their 401(k) plan as follows:
- 46% donate as much as they can afford.
- 24% put aside as much as their employer provides.
- Save 11% up to this year’s employee contribution limit.
- 8% simply save the automatic default amount set in their plan.
In 2023, workers under age 50 can save up to $22,500 for retirement in 401(k) plans, and savers age 50 and older can set aside an additional $7,500 in “catch-up” contributions.
Some plans can save you even more After-tax 401(k) contributions. These employees may be able to combine employee deferrals with their employer’s company equity, profit sharing and other contributions to save up to a Total 401(k) plan limit for 2023 of $66,000 – or $73,500 with catch-up contributions.
According to Fidelity, the nation’s largest provider of 401(k) plans, the average company contribution to a 401(k) plan was 4.7% of an employee’s salary in the second quarter of 2023. The average standard contribution rate for auto-enrolled employees reached 4.1% this quarter, which is the highest Fidelity has ever seen.
Workers are worried about not saving enough
Once they’ve stashed away their 401(k) savings, workers’ understanding of where their money is going is inconsistent. Nearly half, 46%, do not know what investments are in their 401(k), and just over half, 54%, are aware of their investment decisions.
Still, the majority – 56% – admit they are not on track to retire comfortably with their annual 401(k) savings, while about 42% say they are on track for a comfortable one are retired.
Financial advisors recommend the following three steps to ensure you’re on the right track:
- Save enough to get the right employer: Most financial advisors recommend contributing at least enough to a 401(k) account to receive the employer match. “If you’re someone who makes $50,000 a year, [a] “A 6 percent match is $3,000 — that’s huge,” said certified financial planner Malcolm Ethridge, executive vice president at CIC Wealth Management in Rockville, Maryland.
- Expand your emergency fund: Financial advisors say having cash quickly is crucial. “Before focusing on long-term retirement planning, it’s important to establish an emergency fund,” said Ashton Lawrence, CFP and principal and senior wealth advisor at Mariner Wealth Advisors in Greenville, South Carolina. “An emergency fund protects you from unexpected expenses like medical bills or car repairs and prevents you from relying on credit cards in emergencies.” Lawrence recommends saving three to six months of living expenses in a liquid and easily accessible account. Some high-yield savings accounts allow this Earn more than 5% interest on your money now.
- Prioritize paying off high-interest debt: For some financial advisors, it makes sense to deposit less than the employee contribution limit or sometimes even less than necessary to receive the company’s matching contribution, especially if paying off high-interest debt will help ease your financial burden. “Clients are hesitant to lower retirement savings rates because they see it as a step backwards,” said CFP Edward Silversmith, financial advisor and portfolio manager at Wealth Enhancement Group in Pittsford, New York. With average credit card interest rates topping 20%, Silversmith says temporarily adjusting long-term savings to eliminate high-interest debt and rebuilding an emergency fund over time can be a successful strategy. Remember: “The long run is a series of short runs,” he said.
https://www.cnbc.com/2023/09/07/4-in-10-workers-with-a-401k-dont-contribute-to-plan-cnbc-survey.html 4 in 10 workers with a 401(k) do not contribute to the plan: CNBC survey