Many Workers Fail to Manage Their 401(k) Accounts

Survey finds less than half of employees adjust their investments
Employee at a computer

For many workers, a 401(k) plan is their primary method of saving for retirement. Yet a new survey suggests many are taking a passive approach to their investments, which could be costing them financial security in the long run.

To understand consumers’ perceptions about their 401(k) plans and how they use them, investment firm Charles Schwab engaged Logica Research to survey 1,000 working adults between the ages of 25 and 70 who had 401(k) plans with their employers.

They found that while most consumers said these tax-advantaged retirement accounts were important, far fewer were proactive when it came to managing how much they contributed or which assets they invested in, and some might not be putting aside enough for their retirement.

For example, a little more than half of those surveyed (51%) said they were adding 10% of their salary or less to their 401(k), while Charles Schwab suggests a 10% to 15% contribution for those who start investing in their 20s — and as much as 35% for people who start in their mid-40s.

Shortfalls in your investment account can be overcome by increasing your contribution level over time as your salary grows, but less than half of those surveyed (47%) increased the amount they contributed to their plan in the previous two years. In fact, 4% decreased the amount they contributed during that time frame, and the largest percentage (49%) made no changes at all.

Changing the mix of which assets you invest in — stocks versus bonds, for instance — is also important. The closer you get to retirement, the more you’d want to favor more conservative choices, like bonds, over riskier options, like stocks. Yet, 44% of survey respondents who were auto-enrolled in their 401(k) plans have never changed their investment choices, which could leave some taking undue risks with their investments.

One factor that has encouraged some workers to be more proactive about their retirement accounts is having access to an online retirement calculator. Of the survey respondents who have used one, 48% said they increased their 401(k) contributions after doing so.

Still, while some 401(k) investors weren’t actively managing their accounts, a solid majority of 87% described it as a must-have workplace benefit, second only to health insurance. More than half (58%) of respondents also said their 401(k) plan was either their largest source of retirement funds, if not their only one.

Still, saving for retirement isn’t something you should put on autopilot. It’s best to check in periodically to see whether you are on track for retirement or if you should be putting more money away. Increasing the percentage of your salary that you save by just a mere 1% or 2% a year can make a big difference in the amount you have available after you retire.

In order to get the most out of your 401(k) plan, take the time to educate yourself so you understand how these accounts work.

Tamara E. Holmes

Tamara E. Holmes is a Washington, DC-based writer who covers personal finance, entrepreneurship and careers.