Workers who participate in their employer’s 401(k) retirement plan are increasingly anxious about long-term retirementsavings, according to recently releasedsurvey by Schwab Retirement PlanServices. On average, these 401(k) participants say they need to save $1.9 million fora comfortable retirement, an increase of12% from $1.7 million in last year’s survey.
The survey also finds that participantengagement is increasing. Forty-one percent of respondents have made changesto their 401(k) as a direct result of thecoronavirus and its economic impact.
Fourteen percent of these proac-
tive participants have rebalanced their
portfolio, and 12% have increased their
contribution rate. In addition, 8% have
increased their stock funds/equity expo-
sure, while 7% have decreased it.
Financial advice appears to be play-
ing a big role in prompting participants’
actions. Among the 25% of survey respon-
dents who consulted a financial profes-
sional, two-thirds have made changes in
their 401(k) accounts — 26% by rebal-
ancing them, 22% by increasing their
contribution rate and 17% by increasing
exposure to stock funds/equities.
Seventy-seven percent of survey participants report that their employer alsois offering health savings accounts, and45% said they use an HSA. Of these, 13%indicate they have done so this year tocover coronavirus-related expenses.
5 RETIREMENT RISKS
Planning for retirement is challenging.
That’s especially so for those with limited
resources, because they face numerous
risks. Adding to the challenge is a major
discrepancy between how pre- and pres-
ent retirees perceive those risks and what
empirical research shows the main risks
really are, according to a recent study.
Wenliang Hou, a research economistat the Center for Retirement Researchat Boston College, posited five sourcesof risk faced by a “typical” retiree household in his extensive 77-page analysis:
• Mortality or longevity risk, meaning that the retiree may either dieyoung without consuming all of thewealth or live longer than expectedafter exhausting all the money;
• Market risk, such as bad stock returnsor a decline in housing values;
• Health risk, defined as unexpectedmedical expenses and long-termcare needs;
• Family risk, including the death of
a spouse or the unforeseen needs of
family members; and
• Policy risk, mainly a Social Security
Hou systematically ranked thesesources of retirement risk from both anobjective perspective — what the numbers show — and a subjective one — howretirees perceive them. In other words,he asked, do individuals over 50 ranktheir future financial risks the same as
How Much Does It Take to Retire Comfortably?
A Schwab survey finds the COVID- 19 pandemic is increasing anxiety and
also 401(k) engagement. Other research looks at five types of retirement
risk and investors’ understanding of them.
By Michael S. Fischer