Americans stay the course on 401(k) savings despite inflation fears

Retirement confidence is slipping, but the determination of savers is not, according to a new report.

As inflation remains the top obstacle for 57% of 401(k) participants, only 34% now feel “very likely” to hit their savings goals, a noticeable drop from 43% in 2024, according to Charles Schwab’s latest nationwide survey.

However, just 11% of respondents have cut contributions in response to economic conditions, opting instead to trim spending with 40% reporting buying less and 39% choosing cheaper options when they do.

Also, fewer savers are tapping into their nest eggs early with the report showing that loans and hardship withdrawals have declined from 26% to 21% year-over-year.

“401(k) investors continue to face uncertainty,” says Lee McAdoo, Managing Director, Schwab Retirement Plan Services. “Inflation and market volatility remain top of mind, which can make it difficult to develop a long-term retirement strategy. It’s encouraging to see that most savers are prioritizing consistency in terms of their contribution rates and are largely avoiding dipping into their retirement savings – a positive sign that they are focused on their futures.”

In addition to their 401(k) plans, Gen X and Boomers are more likely to invest for retirement in an IRA and a brokerage account than younger savers.

Workers now expect to retire at age 66 with $1.6 million saved, which they believe will cover 22 years of retirement and workplace retirement plans have become central to that future. On average, workers expect 45% of their retirement income to come from their 401(k), up from 43% last year, while 18% is expected to come from Social Security, up from 16% last year.

About 23% of participants adjusted their investment mix in response to inflation and market swings, with 79% becoming more conservative.

The role of advisors is clear with only 27% of respondents feeling very confident making investment decisions alone but 51% having that level of confidence when working with professional guidance. Today, 83% are getting some form of financial advice, most often from their 401(k) plan (38%), followed by family and friends or financial advisors (both 29%).

Generational divides show Gen Z leading in optimism with 53% believing they’ll reach their retirement goals and plan to retire at 62. Boomers are more cautious and are also the most likely to rely on financial advisors and diversify with IRAs and brokerage accounts.

Employers are also improving their offer with 85% offering 401(k) plans and 86% offering health insurance, many are also increasing pay, offering better matches, and expanding benefits like HSAs to ease financial stress.

“We see employers playing a vital, expanding role in employees’ financial lives well beyond providing a paycheck,” says Marci Stewart, director, Client Experience, Schwab Workplace Financial Services. “While the outlook for inflation is cloudy and market volatility remains a part of life, workplace benefits, including holistic financial support, can provide a welcome sense of stability and confidence for employees.”