The Longevity Curve

Happy Birthday, 401(k)

The state of Boomers in retirement, as 401(k) turns 40

A new Schwab study looks at the confidence of Boomers in retirement. Visit www.schwab.com

This November marks the 40th anniversary of the legislation that paved the way for 401(k) plans. Schwab Retirement Plan Services is out with a study that highlights the confidence that Baby Boomers – the first generation with access to a 401(k) for the majority of their career – feel as they approach retirement. In fact, 75% of these survey respondents believe their 401(k) is in better shape now than ever before.

According to the survey of workers aged 54 to 70 who are currently saving in a 401(k) plan, only 16% of respondents expect to work during retirement because they think they will need the money, 40% plan to work in some capacity because they want to, and a quarter of respondents do not plan to work at all in retirement. Additionally, nearly three-quarters of Boomers said they think they’ll have a better quality of life in retirement than their parents, and 78% believe it will also be better than that of the generation that follows.

Despite this confidence, though, the survey revealed that not everyone who is approaching retirement feels fully prepared. More than a third of respondents (36%) still do not know how much they need to have saved up for retirement, and a quarter are still unsure about what percentage of their salary they should be contributing to their 401(k). In addition, one-fifth of Boomers say they do not understand the process for withdrawing money from their 401(k) in retirement.

“Forty years ago, we might not have anticipated that the weight of Americans’ retirement would rest so squarely on the shoulders of the 401(k) plan. While it is encouraging to see that so many Boomers are confident in their ability to retire comfortably, it is not surprising that a large percentage of them are feeling unprepared as they approach the end of their careers,” said Catherine Golladay, Senior Vice President, Participant Services and Administration, Schwab Retirement Plan Services.

While it is encouraging to see that so many Boomers are confident in their ability to retire comfortably, it is not surprising that a large percentage of them are feeling unprepared as they approach the end of their careers...

Nearly half of respondents (46%) expect their 401(k) to be their largest source of income during retirement, followed by:

  • Savings and investments outside of their workplace 401(k) plan (23%);
  • Social Security (19%);
  • A pension (11%).

While most Boomers (81%) expect to use the funds from their 401(k) to cover general day-to-day expenses, other planned uses for the money include:

  • Travel (40%);
  • Cover healthcare expenses (36%);
  • Pay for housing (21%);
  • Pay medical expenses (20%);
  • Offer financial assistance to their children and/or grandchildren (8%).

Adds Golladay: “A comfortable retirement requires careful planning, and it is important to understand that you don’t have to do this alone. Even if you’re ten years out, or a little closer, there are still meaningful steps you can take, even if you feel unprepared. If you haven’t already done so, now is the time to engage, and the easiest way to do that is go online or pick up the phone and talk with your 401(k) provider. They have expertise, professionals, and often very specific advice services that can assess where you are and help determine your best next steps. Everyone’s financial situation is different, so if you are unsure of your retirement income needs, asking for help can make all the difference.”