Financial Illiteracy and 401(k) Insights

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Explore financial illiteracy's impact on 401(k) plans. Learn how to prepare for retirement with safe money alternatives. Get informed today! Note: This is the second part of a month-long series on financial awareness in the U.S., 401(k) plans, and how investors are planning – or not preparing – for retirement. If you have an employer-sponsored retirement plan, read on for insights on how a lack of financial education can tie into people’s experiences with their 401(k) plans. Financial Literacy: A Must for Retirement Success Financial wellness is the ground-spring for a happy and financially secure retirement. As common sense may indicate, this begins with well-informed retirement planning decisions. But many Americans fall short in their knowledge of even the basics, as numerous consumer surveys document, year after year. And in turn, this knowledge gap can lead into broken retirement dreams: crushing debt, depletion of savings, scaled-back lifestyles, and other headaches that undermine Americans’ post-work standard of living. 401(k)s and Their Retirement Saving Influence Perhaps not surprisingly, consumer surveys show that even those actively saving in 401(k)s, as well as in other workplace saving plans, also struggle in their financial knowledge and retirement readiness. It’s a noteworthy trend, considering that the 401(k) is one of the primary retirement savings vehicles in the United States. According to research from Charles Schwab, 7 out of 10 of 401(k) plan participants say they will be relying on their 401(k) as their “main or only” source of retirement income outside of Social Security. And in a recent analysis of 401(k) data from the Department of Labor (courtesy of Brightscope and the Investment Company Institute), nearly 63 million U.S. workers were covered by 401(k) plans in 2014. Moreover, 401(k) plan assets have accounted for almost one-fifth of total U.S. retirement assets in more recent times. As of December 31, 2016, $4.8 trillion was held in 401(k) plans, the Investment Company Institute reports. So, what are the struggles that Americans with 401(k)s wrestle with? Retirement Education and Readiness Challenges for 401(k) Owners Recall the Charles Schwab research, which indicated 70% of retirement savers planned to use their 401(k)s as a top income so