25 June 2019

Reasons Americans Don’t Save More

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Americans try to plan ahead for retirement but many feel they simply can't afford to save right now for a far-away future. Of those that are actively saving, 401k plans are the hands-down favorite. But many are not taking full advantage of this defined contribution plan, whereby you choose the amount of money your employer places into your account – often with an additional contribution from your company.

Too confusing...
Charles Schwab's new 401(k) Participant Survey showed that 87% of respondents value this workplace benefit above most others, including an extra week of vacation time. The problem is that workers find the plan rules complicated, and their lack of understanding inhibits them from utilizing the accounts to their fullest. Worse yet, participants aren't asking questions in order to overcome this knowledge gap.

Interestingly, both the Natixis and Schwab studies find this to be the case, with the latter noting that an equal number of employees consider 401(k) plans to be as incomprehensible as employer-based health insurance policies. 

...and too passive
Surprisingly, part of the problem seems to be one of the retirement option's main attractions: its passive nature of saving. Once workers join, they appear to adopt a "set and forget" mind-set, allowing the account to grow without any additional input. The Schwab poll found that respondents reported spending more time researching a new car purchase than considering choices for their 401(k) account. 

Natixis found a similar lack of gumption, noting that passive participation must become more active if employees are to benefit fully from this savings option.

How employers can help
Natixis notes that nearly half of respondents said that they would step up their 401(k) contributions if they had a better understanding of how their plan worked. Employers can be a big help here, ensuring that workers have adequate information on a regular basis. Since most employees wait until they are close to retirement to seek assistance, keeping workers up-to-date is the best way to spur involvement.  Employers can increase their matching contributions, as well.

How you can help yourself
Become more active in your 401(k) plan by asking questions of your employer. Overcoming the inertia that seems to blanket 401(k) participants is an important first step, since many workers report that they do not take advantage of employer-supplied planning tools, despite convenient access. 

If you don't know which questions to ask – or are not satisfied with the answers you receive – engage the services of a financial advisor. Schwab's study shows that 70% of those surveyed expressed high levels of confidence in their investment decisions with the aid of an advisor, compared with 39% of those who did not avail themselves of such services.

Do your own research, as well. The most important thing is to get involved, and stay involved – your future literally depends on it.

How to get even more income during retirement
Social Security plays a key role in your financial security, but it’s not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family.

Click here to access the full article on Motley Fool.

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