Retiree Happiness in Sight? Optimism and Pitfalls in Retirement Planning

In a surprising twist amid the often grim reports about the lack of retirement savings in the United States, there is recent positive news for 401(k) investors. According to a study by Vanguard from the past month, participation, contributions, and account balances will reach record highs in 2023. New research from BlackRock also shows that nearly 70 percent of working savers believe they are on the right track for retirement—a 12-point increase compared to the previous year. But have we thereby solved the country’s oft-discussed retirement problem—at least for the roughly half of Americans who have access to employer-sponsored savings plans? By no means. Although the average 401(k) balance has impressively increased by 29 percent in 2023, the typical account value at year-end was just slightly over $35,000, according to Vanguard. Further warning signs include a record number of savers withdrawing money prematurely and an increase in the percentage of those taking loans. Overall, despite the superficial optimism, a large portion of investors remains concerned about whether their money will be sufficient in retirement—according to BlackRock, six out of ten investors. “The rising tide has not lifted all boats,” said Christine Benz, Director of Personal Finance and Retirement Planning at Morningstar. So, how can one be among those who successfully stay afloat? It is essential to avoid the common mistakes that can undermine saving efforts. Experts identify three major stumbling blocks and ways to get back on track. Saving too little and too late—often due to automatic default settings. The increasingly common automatic enrollment in 401(k) plans is the main reason more Americans than ever are saving in these accounts. At companies that automatically enroll their employees, the participation rate last year was 94 percent, compared to just 67 percent at places where enrollment is voluntary, Vanguard reports.