Debt Regret Fuels Financial Stress, Finds New Schwab Retirement Study

A new survey from Schwab Retirement Plan Services, Inc. reveals that everyday money matters are dramatically impacting the lives and retirement saving efforts of Americans. The nationwide survey of 1,000 workers with access to a 401(k) plan – half of whom are actively contributing to it (“savers”) and half of whom are not (“non-savers”) – reveals that non-savers are increasingly challenged by day-to-day financial stresses, compounded especially by credit card debt.

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Steve Anderson, Executive Vice President of Schwab Retirement Plan Services (Photo: Business Wire)

Regardless of whether survey participants are actively contributing to a 401(k), the majority identify it as a primary source of retirement savings. In fact, 60 percent of savers and 53 percent of non-savers who have at one time contributed to a 401(k) say their 401(k) is their largest or only source of retirement savings, even though the latter group is not currently contributing. Furthermore, a quarter of non-savers say they are not saving or investing for retirement at all right now.

“In comparing individuals now saving in their 401(k) plans and those who aren’t, we uncovered some common challenges but also a number of striking differences in the way each group thinks about their overall financial picture,” said Steve Anderson, president, Schwab Retirement Plan Services, Inc. “What’s important for everyone to remember is that – no matter how far away retirement may seem – the more you can prepare for it in the present, the better off you’ll be at the end of your career.”

Bills, Bills, Bills: Short-term Financial Barriers Inhibiting Long-term Saving

Workers in the survey identified a number of sources of financial stress, with non-savers naming present-day challenges in far greater numbers than their saving peers.

• More than twice as many non-savers as savers say keeping up with monthly expenses is a significant source of stress (42% compared to 20%).
• A full 45 percent of non-savers say they either have no money left over or are actually behind on bills at the end of each month, compared to 23 percent of 401(k)-savers who say the same.

When asked about their primary obstacles to saving for retirement, non-savers focused on immediate concerns including: needing to pay basic monthly bills (46%), paying off credit card debt (42%), covering unexpected expenses like home repairs (34%), and paying medical bills (33%). Savers have similar concerns, but generally in smaller numbers: unexpected expenses (36%), monthly bills (31%), being unwilling to sacrifice things that add to their quality of life (29%), and credit card debt (29%) top their list.

In hindsight, non-savers recognize the impact that debt is having on their ability to save. When asked to select the one thing they would change about the way they managed their finances in the past, 26 percent of non-savers say they would have accumulated less debt, compared to just 13 percent of savers.

Ready or Not? Gaps in Retirement Preparedness Evident

The survey reveals a substantial gap in the way 401(k)-savers and non-savers perceive their overall financial health. Eighty-five percent of savers say they are in pretty good shape or very good shape financially, compared to 64 percent of non-savers.

A closer look at savers reveals they are taking positive steps with their 401(k) plans, with 66 percent saying they have increased their contribution percentage in the past two years and 62 percent saying they believe they are saving enough to retire when they want to.

Outside of 401(k) plans, savings accounts and IRAs are the most common methods of saving for retirement.

• Fifty-six percent of savers have a savings account, and 47 percent have an IRA.
• Forty-four percent of non-savers have a savings account and 23 percent have an IRA.
• More than a quarter of non-savers (26%) are not currently saving or investing for retirement at all.

“Americans have many legitimate and immediate financial concerns preventing them from setting aside funds for retirement. The good news is that both 401(k)-savers and non-savers understand they are responsible for their own retirement, and some may just need a little guidance to help them take steps in the right direction,” Anderson continued. “In many cases, their employers stand ready to help, often through workplace financial wellness programs, with resources and tools that enable them to formulate strategies to meet their current obligations while still keeping an eye on the future.”

Closing the Gap with Financial Wellness and Advice

The survey also reveals that personal financial stress can spill over into the workplace, with 30 percent of non-savers and 21 percent of savers saying it has affected their job performance. The majority of both groups – 86 percent of savers and 77 percent of non-savers – would welcome a financial wellness program from their employer, which could provide education, tools and resources to help with their overall financial health.

However, when asked if they think their current financial situation warrants professional financial advice, 40 percent of savers and 44 percent of non-savers say no. This is true even though both groups say their investment confidence would grow dramatically with the help of a financial professional.

• Fifty percent of savers are very/extremely confident making investment decisions on their own, but 76 percent say they would be very/extremely confident if they had the help of a financial professional.
• Similarly, 47 percent of non-savers are very/extremely confident making investment decisions on their own, but 70 percent say they would be very/extremely confident if they had the help of a financial professional.

“It’s important for people to understand that whether you have $1,000 or $100,000, your wealth merits help to maximize its potential,” adds Catherine Golladay, senior vice president, 401(k) Participant Services and Administration at Schwab Retirement Plan Services. “A number of those we surveyed, especially the non-savers, say they’re uncomfortable asking for help with their finances. I’d encourage everyone to take advantage of all the resources available to them so they can better manage their current situation while putting away funds for their future retirement.”

Other Notable Survey Findings

• Savers and non-savers alike are self-reliant when it comes to funding their retirement. Eighty-nine percent of savers and 79 percent of non-savers say they’re relying on themselves or their spouses for their income in retirement.
• Likewise, Social Security isn’t believed to be a sure thing. Just half of savers (52%) and non-savers (50%) believe they will receive Social Security benefits in retirement. Some 21 percent and 23 percent, respectively, say they will not, and 27 percent of both groups are unsure.
• Savers and non-savers alike spent more time researching their options the last time they bought a car (4 and 3.7 hours, respectively), took a vacation (3.7 and 3.3 hours) or purchased a home appliance (2.9 and 2.7 hours) than they did making a 401(k) investment choice (2.5 hours for both groups).
• Even though 401(k) investment fees can have a dramatic impact on retirement savings, both savers and non-savers say fees are less likely to influence their choice of 401(k) investments than they are their choice of a credit card, online shopping destination, ATM or airline.

About the Survey

This online survey of U.S. workers eligible for a workplace 401(k) plan, half of whom are actively saving in it and half of whom are not, was conducted by Koski Research for Schwab Retirement Plan Services, Inc. Koski Research is neither affiliated with, nor employed by, Schwab Retirement Plan Services, Inc. The survey is based on 1,000 interviews and has a 3 percent margin of error at the 95 percent confidence level. Survey respondents worked for companies with at least 25 employees and were 25-70 years old. Survey respondents were not asked to indicate whether they had 401(k) accounts with Schwab Retirement Plan Services, Inc. All data is self-reported by study participants and is not verified or validated. Respondents participated in the study between June 2 and June 18, 2017. Detailed results can be found here.

About Charles Schwab

At Charles Schwab we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity.

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Financial tools and resources are available at www.schwabmoneywise.com.

Disclosures

Through its operating subsidiaries, The Charles Schwab Corporation (NYSE: SCHW) provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; compliance and trade monitoring solutions; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products. More information is available at www.schwab.com and www.aboutschwab.com.

The Charles Schwab Corporation provides services to retirement and other benefit plans and participants through its separate but affiliated companies and subsidiaries: Charles Schwab Bank; Charles Schwab & Co., Inc.; and Schwab Retirement Plan Services, Inc. Trust, custody, and deposit products and services are available through Charles Schwab Bank. Schwab Retirement Plan Services, Inc. is not a fiduciary to retirement plans or participants and only provides recordkeeping and related services. (0817-7ANJ)

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