Is financial stress hurting retirement savings? 4 in 10 workers with a 401(k) don’t contribute, CNBC survey finds

Most Americans will have to rely on their savings to fund their retirement, but financial stress makes it hard for many workers to save.

A new CNBC Your Money Survey conducted by SurveyMonkey found that 74% of Americans are feeling financially stressed, up from 70% in an April survey. About 37% of respondents indicated that they are “very stressed” about their personal finances, compared to only 30% in April.

More than 4,300 adults in the U.S. were surveyed in late August for the new report. The top stressors remained the same as in April: inflation, rising interest rates and a lack of savings.

Those financial strains also make it harder for many workers to fund a retirement plan. 

About 2,700 respondents of the CNBC Your Money Survey are employed full time or part time. Of that group, 4 out of 10 workers, 41%, don’t contribute any money at all to a 401(k) or employer-sponsored plan. They’re missing out on a significant opportunity to improve their financial security for the future, experts say.

Yet, the survey found nearly 6 out of 10 workers, 57%, are contributing to a 401(k) or company-based savings account.

The CNBC Your Money Survey found that, among those who are contributing, here’s how they’re funding their 401(k) plan:

• 46% are contributing as much as they can afford.
• 24% are putting away as much as their employer will match.
• 11% are saving up to this year’s employee contribution limit.
• 8% just save the automatic default amount set by their plan.

In 2023, workers younger than 50 years old can save up to $22,500 for retirement in 401(k) plans, and savers who are age 50 and older can put away an extra $7,500 in “catch-up” contributions.

Some plans will let you save even more through after-tax 401(k) contributions. Those workers may be able to combine employee deferrals plus the company match, profit sharing and other deposits from their employer to save up to a total 401(k) plan limit for 2023 of $66,000 — or $73,500 with catch-up contributions.

The average company match in a 401(k) plan was 4.7% of a worker’s salary in the second quarter of 2023, according to Fidelity, the nation’s largest 401(k) plan provider. The average default contribution rate for auto-enrolled employees reached 4.1% in that quarter, which is the highest Fidelity said it has seen.

Once they’ve stashed away their 401(k) savings, workers’ understanding of where their money is going is mixed. Nearly half, 46%, don’t know what investments are in their 401(k) and a little more than half, 54%, are aware of their investment choices.

Still, the majority — 56% — admit they are not on track with their yearly 401(k) savings to retire comfortably, while some 42% say they are on track for a comfortable retirement.

Financial advisors recommend taking these three steps to help ensure you’re on the right track:

1. Save enough to get the employer match: Most financial advisors recommend contributing at least enough to a 401(k) to receive the employer match. “If you’re a person making $50,000 a year, [a] 6% match is $3,000 — that’s huge,” said certified financial planner Malcolm Ethridge, executive vice president at CIC Wealth Management in Rockville, Maryland.
2. Boost your emergency fund: Having cash that you can get to quickly is critical, financial advisors say. “Before focusing on long-term retirement savings, it’s crucial to establish an emergency fund,” said Ashton Lawrence, CFP and director and senior wealth advisor with Mariner Wealth Advisors in Greenville, South Carolina. “An emergency fund helps protect you from unexpected expenses, like medical bills or car repairs, and prevents you from relying on credit cards when emergencies arise.” Lawrence recommends trying to save three to six months’ worth of living expenses in a liquid and easily accessible account. Some high-yield savings accounts let you earn more than 5% interest on your money right now.
3. Prioritize paying off high-interest debt: Stashing away less than the maximum employee contribution limit, or sometimes even less than is needed to get the company’s matching contribution, makes sense to some financial advisors, especially if paying off high-interest debt helps reduce your financial stress. “Clients are hesitant to decrease retirement savings rates because they view it as a step back,” said CFP Edward Silversmith, a financial advisor and portfolio manager with Wealth Enhancement Group in Pittsford, New York. With average credit card rates topping 20%, Silversmith said that temporarily adjusting long-term savings to eliminate high-interest debt and reestablishing an emergency fund can be a winning strategy over time. Remember, “the long run is a series of short runs,” he said.