Are Americans financially literate? A new study by Pontera and The Harris Poll revealed a disconnect between perceived and actual financial knowledge of employer-sponsored retirement accounts, among retirement savers–highlighting a critical need for increased financial education and accessible resources to help savers make informed decisions about their retirement savings.
The study, which assessed the financial literacy of over 2,000 full-time workers with an employer-sponsored account, found that six in 10 respondents considered themselves highly financially literate. But when asked fundamental questions about their retirement plan accounts, an alarming 85% struggled to answer correctly or at all.
Where plan participants struggle:
Given the complexities of employer-sponsored accounts, it’s no wonder that even those with the best of intentions may navigate their accounts with limited understanding. Jargon, evolving regulations, and a myriad of investment options can overwhelm participants and make it appealing to default to assumptions, a practice that can be a hidden stumbling block on the path to retirement security, potentially leading to missed opportunities and diminished savings. This is especially concerning given the median American family holds nearly half of their net worth in their employer-sponsored accounts.
How professional guidance helps
Bridging this knowledge gap is crucial for retirement readiness, and financial advisors are uniquely positioned to guide individuals towards a more secure future. The study revealed that individuals with a financial advisor are more actively engaged with their retirement plan accounts, including checking their balances weekly and contributing more of their income to their 401(k)s or 403(b)s compared to those without an advisor. Additionally, participants with an advisor are more likely than their non-advised counterparts to take full advantage of employer-matching contributions, a valuable opportunity to significantly boost retirement savings.
Beyond fostering healthier saving habits that can lead to financial gains, those who receive professional financial advice also experience intangible benefits like greater confidence in their ability to retire securely. More than 80% of those surveyed attributed their confidence in a stable retirement to guidance from their advisor.
While there are various online tools that already exist to readily help individuals manage and understand their 401(k)s, savers are hungry for the personalized, expert advice that comes with having a financial advisor–and they’re willing to put a price on it. In fact, among the 74% of respondents who confessed to wanting more professional help, a majority (77%) are willing to pay for it.
Bespoke solutions
By providing expert management of these accounts that employ tax-efficient and holistic planning strategies, advisors can help savers make the most out of their employer-sponsored accounts. Studies show that professional management of retirement accounts can lead to higher returns compared to self-directed accounts.
With technology solutions like Pontera, financial advisors can comprehensively manage clients' 401(k)s, 403(b)s, and other held away accounts, while simplifying the complexities of retirement plan information for savers.
Advisors who take this proactive approach to retirement planning empower savers to take greater control of their financial futures. And for the estimated 85 million workers with an employer-sponsored account, this guidance can be a lifeline–helping them achieve a comfortable and secure retirement, free from financial worries.
Read the full survey results here.