Many Americans are worried about building a nest egg for the future. Saving enough money for a comfortable retirement is a significant source of stress for 40 percent of employees, according to a recent survey of 1,000 401(k) participants by Schwab Retirement Plan Services and Koski Research. More people are stressed about their retirement finances than their job security (24 percent), credit card debt (21 percent) or meeting daily expenses (20 percent), the survey found.
[See: 10 Ways to Make Your 401(k) Balance Grow Faster.]
The savers in the survey know that they are responsible for preparing for their own financial future, but are at a loss about how to do it. Many retirement plan participants say they feel uncomfortable about their ability to make saving and investment decisions that impact how well they will be able to live in retirement. Here’s how 401(k) plans are provoking anxiety:
How much to save. Most of us know we need to amass a significant nest egg to pay for retirement, but only 43 percent of 401(k) participants say they have calculated how much they need to save, Schwab found. And nearly half of those surveyed report that it seems impossible to save enough money in a 401(k) plan for a comfortable retirement. Many 401(k) participants say they would like help calculating how much they need to accumulate for retirement (46 percent) and estimating their likely retirement expenses (39 percent). They would also like guidance in determining the age when they can afford to retire (43 percent).
Where to invest. It requires a considerable amount of financial knowledge to select investments, and your financial future is riding on your ability to do so. Many 401(k) participants say they don’t feel equipped to invest their retirement savings. Most workers report feeling only somewhat confident (45 percent) or not very confident (11 percent) about their ability to make 401(k) investment decisions. Retirement savers say they don’t know how to pick among their 401(k) investment options (44 percent) and find selecting 401(k) investments stressful (35 percent). They also have to avoid a variety of fees and penalties in order to successfully grow a nest egg.
[Read: How Your 401(k) Balance Stacks Up.]
Obstacles to saving. Competing bills make it difficult to save for retirement. Some workers have other obligations that are preventing them from saving for the future, including unexpected expenses such as home repairs (30 percent) and medical bills (19 percent). Parents say that it is challenging to pay for a child’s education and save for retirement at the same time (29 percent). It’s especially hard to build a financial future when you are redirecting your current income toward debt you incurred in the past. Paying off credit card debt (23 percent) or student loans (17 percent) is preventing some people from saving for retirement.
Many paychecks aren’t keeping pace with the cost of living, and 24 percent of 401(k) participants say just paying their monthly bills is making it difficult to save for retirement. Other people simply have more immediate wants and are unwilling to sacrifice their current quality of life to build a nest egg for the future (32 percent).
Paying the tax bill. Workers get to defer paying income tax on money they contribute to a traditional 401(k) plan. But that tax bill becomes due in retirement, and retirees need a plan to pay it. Some 38 percent of those surveyed are anticipating the tax bill that will be due on their retirement savings and are interested in strategies to minimize the tax bite.
[See: How to Reduce Your Tax Bill by Saving for Retirement.]
Most employees recognize the importance of funding a 401(k) plan. Almost all the workers surveyed (90 percent) say a 401(k) plan is a “must-have” workplace benefit, second only to health insurance. And 91 percent of employees say they would think twice about any job offer that didn’t come with a 401(k) plan. The majority of retirement plan participants (59 percent) say their 401(k) is their only or largest source of retirement savings. But the weight of that financial responsibility combined with a lack of financial knowledge about picking investments and turning a nest egg into retirement income makes funding a 401(k) plan a nerve-wracking experience.
Emily Brandon is the author of “Pensionless: The 10-Step Solution for a Stress-Free Retirement.”
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Why 401(k) Plans are a Source of Financial Stress originally appeared on usnews.com
