Having access to a 401(k) plan can greatly enhance a person’s ability to achieve a comfortable and financially secure retirement. For example, a new survey conducted by Wells Fargo found that nearly nine in ten plan participants age 30 or older believe they would not have set as much money aside for retirement without a 401(k). As for surveyed workers currently lacking access to these plans, 62 percent feel that they would be saving more if they had a 401(k). Moreover, participants in these tax-advantaged plans, when compared to workers without access, were found to start saving for retirement at an earlier age (28 vs. 31), have higher savings goals (median $800,000 vs. $500,000), and make greater progress toward those goals (15% vs. 10%). Most importantly, 401(k) participants were found to have saved significantly more for retirement than those without access (median $120,000 vs. $50,000).
The difference in accumulated savings becomes more dramatic as people age. Workers in the sample age 50 or older with a 401(k), for instance, had set aside six times more for retirement than those without access. Unsurprisingly, 401(k) participants were found to have greater certainty about when they will be able to retire than workers without access to these plans, as well as a lower likelihood of having to rely upon Social Security as a primary income source in old age. The report’s authors added that “automatic enrollment features can boost participation and auto-escalation can help contributions build to meaningful totals over time.” Encouragingly, a new study by Alight Solutions found that more employers are utilizing automatic enrollment and adopting higher default savings rates. Specifically, 68 percent of sponsors in 2017 have incorporated automatic enrollment into their plan design, up from 58 percent in 2015, and nearly a third (30 percent) of sponsors started participants off at a 6 percent contribution rate this year, up from just 11 percent of sponsors in 2009.
Sources: Wells Fargo, NAPA, Alight SolutionsPost author: Charles Couch