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American workers who participate in a retirement plan expect to need an average $1.28 million set aside to retire comfortably, according to a new survey from investment management company Schroders.
Yet just 30% of workers say they expect to have $1 million or more by the time they retire, the survey found. About half, 48%, expect to have less than $500,000, and 26% expect to have less than $250,000.
Other studies point to similar challenges, with Transamerica Center for Retirement Studies reporting that 68% of workers say they could work until retirement and still not have enough saved.
Feeling behind can prompt financial insecurities, including a fear of running out of money in retirement, according to Schroders.
Schroders’ survey was conducted between March and April and included 1,500 investors, including 602 retirement plan participants.
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Yet with competing financial priorities, workers may be tempted to prioritize their immediate needs over future retirement goals, according to Deb Boyden, head of U.S. defined contribution at Schroders.
“People think here and now, ‘I need that money to cover whatever expense that is hitting at this point,'” Boyden said.
Experts say there are several moves workers can make to help nudge their retirement balances higher.
Strive for a higher savings rate
While surveys may tout the grand total aspiring retirees think they need to have saved, experts say there’s another number that should be a priority instead — their retirement savings rate. That’s the share of pay that employees set aside, plus company contributions.
If a 401(k) or other retirement savings plan provides an employer match, experts generally say workers should contribute at least enough to reap the benefit of that free employer money.
The average promised match was 4.6% of pay in 2024, according to Vanguard’s latest annual report on defined contribution plans.
Yet to achieve a meaningful sum set away for retirement, experts say having a high savings rate is crucial.
The ideal target savings rate may range from 12% to 15%, including company contributions, according to Vanguard.
In 2024, the average 401(k) savings rate was in the low range of that sweet spot at 12%, including both employee and employer contributions, Vanguard’s report found.
Avoid tapping 401(k) funds
Workers may be tempted to tap their 401(k) or other work retirement plan if they’re short on cash.
Around 17% of savers said they have borrowed from their retirement plan, the Schroders survey found.
Among the reasons for tapping those funds included paying for unforeseen expenses or emergencies, paying down credit card or other debts, keeping up with a higher cost of living, purchasing a home or paying for medical care, according to the survey results.
While workers who take 401(k) loans may avoid taxes and penalties that come with withdrawals, they still lose out on the gains the money would have made if it had stayed invested. Importantly, if those borrowers leave or lose their job, they could be on the hook to repay those loans quickly.
To help avoid the temptation to borrow from retirement savings, workers may strive to build emergency savings that can serve as a buffer when cash needs arise, Boyden said.
Don’t put too much in cash
Nearly one-third of investors — 31% — say they don’t know how their retirement money is invested, Schroders found.
For those who do know, equities were the most popular retirement investment, with 31%. Meanwhile, cash came in second, at 23%, followed by fixed income with just 16%. Other allocations cited by respondents included target-date funds, which customize asset allocations based on a determined retirement date, as well as other miscellaneous investments.
While higher interest rates have made it possible to earn higher returns on cash, investors with a long-term time horizon would be wise to have higher allocations to equities and other investments that provide more potential upside.
Retirement savers who are tempted to play it safe and hold more cash may want to consider how long the lump sum they have set aside may last, Boyden said. By keeping their long-term goal in mind, they may feel more comfortable taking on more risk now, she said.
Ideally, investors would reassess those allocations quarterly, Boyden said.
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