Financial strain hinders many workers from saving, forcing most Americans to depend on their savings for retirement. In a recent CNBC Your Money Survey by SurveyMonkey, financial stress increased from 70% in April to 74% among Americans.
About 37% of survey participants now express “very stressed” sentiments about their personal finances, a rise from April’s 30%. Researchers surveyed over 4,300 US adults in late August for the recent report, with the primary stressors mirroring those from April.
4 out of 10 workers are not able to contribute to 401(k) plan
Among the approximately 2,700 surveyed individuals employed either full or part-time, 41% do not make contributions to a 401(k) plan or employer-sponsored retirement plan. Experts emphasize that these workers are forgoing a valuable chance to enhance their financial future security.
The survey revealed that 57% of workers, almost six out of ten, actively participate in a 401(k) or employer-based savings plan. According to the Survey, 46% of contributors allocate the maximum amount within their financial means to their 401(k) plan.
About 24% deposit the sum equivalent to their employer’s matching contribution. A total of 11% save up to reach the annual employee contribution limit for the current year. Additionally, 8% opt to store funds in accordance with the preset default amount designated by their plan.
401(k) Data Of US for 2023
In 2023, individuals under the age of 50 have the opportunity to save a maximum of $22,500 in their 401(k) retirement plans. Those aged 50 and above can make additional “catch-up” contributions, allowing them to save an extra $7,500.
Certain plans offer the option of making additional after-tax 401(k) contributions, allowing workers to increase their savings potential. Employees who choose this option can potentially accumulate up to the 2023 401(k) plan limit of $66,000, including employee deferrals, company match, and other employer deposits.
In the second quarter of 2023, Fidelity, the nation’s largest 401(k) plan provider, reported an average company match at 4.7% of an employee’s salary. During the same quarter, the average default contribution rate for employees enrolled automatically reached 4.1%, a record high according to Fidelity.
Workers lack awareness about their funds
After depositing funds into their 401(k) accounts, workers exhibit varied levels of awareness regarding their investment details. Approximately 46% of workers lack knowledge about the specific investments within their 401(k) portfolios. Conversely, slightly over half, or 54%, understand the investment options available to them.
A majority, comprising 56%, acknowledge they are not meeting their annual 401(k) savings targets for a comfortable retirement. Conversely, 42% express confidence in being on course for a comfortable retirement through their 401(k) savings. Financial advisors commonly advise individuals to contribute sufficient amounts to their 401(k) plans to benefit from the employer match.
Expert opinions
According to a certified financial planner, Malcolm Ethridge, a 6% employer match can amount to $3,000 annually. Ethridge, who serves as the executive vice president at CIC Wealth Management, emphasizes the significance of this financial opportunity.
It is a widely endorsed practice among financial advisors to maximize employer matches for better retirement savings. Financial experts emphasize the importance of having readily accessible cash, citing it as a critical component.
Ashton Lawrence, a Certified Financial Planner and director at Mariner Wealth Advisors advises individuals to prioritize establishing an emergency fund. Lawrence points out that this fund protects against unforeseen expenses such as medical bills or car repairs.
It also helps prevent individuals from relying on credit cards in emergencies, which can lead to financial stress. Lawrence suggests accumulating three to six months’ worth of living expenses. This fund should be maintained in a liquid account easily accessible when needed.
Edward Silversmith, a Certified Financial Planner and portfolio manager at Wealth Enhancement Group, notes clients’ reluctance to lower retirement savings rates. Silversmith emphasizes that temporarily adjusting long-term savings to tackle high-interest debt and rebuilding an emergency fund can be a sound strategy.
With average credit card interest rates exceeding 20%, this strategy can lead to long-term financial gains. Silversmith underscores that the “long run” consists of shorter financial periods.
Other amenities for workers’ financial security
Additionally, some high-yield savings accounts offer an opportunity to earn over 5% interest on deposited funds. Prioritizing an emergency fund provides financial security and reduces reliance on credit during unexpected financial challenges.
Some financial advisors advocate saving less than the maximum employee contribution limit or even less than required to secure a company match. This approach gains support, especially when addressing high-interest debt and reducing financial strain.
Individuals can ultimately enhance their overall financial well-being by prioritizing debt reduction and financial security. This approach provides a balanced perspective on managing retirement savings and addressing immediate financial needs.