Nearly Half of 401(k) Investors Don’t Know What They’re Invested In

September 12, 2023

401(k) plans are one of the most common and effective ways that workers can save for retirement, but a new survey showed that many Americans skip out on contributions altogether, and those who do are largely unaware of how their savings are being invested.

A recent survey from CNBC found that, among the survey’s 2,700 respondents who are employed full-time, 41% said they make no contributions at all. Of those who do make contributions, the largest portion of the respondents, 46%, said they only contribute as much as they feel they can afford. Only about a quarter, 24%, said they contribute up to the limit that their employer will match, which can be one of the most effective ways to save for retirement. 

More worrying, however, is that nearly half, 46%, of those who do make regular 401(k) contributions said they are clueless about what they are actually invested in. Most likely, their contributions are being invested in target-date funds, the most popular 401(k) investment. Target-date funds accounted for 60% of all 401(k) investments in 2021, according to data from Cerulli Associates. 

Target-date funds can automatically take care of important investment actions like diversifying, rebalancing, and adjusting risk as participants get closer to retirement age, but this comes at a cost. According to Morningstar data, the average actively managed target-date fund has an expense ratio of 0.82%. At the very least, investors should know how much they are paying for the investment vehicles in their 401(k) and if there are more cost-effective options. Beyond that, there are a variety of ways that investors can better manage their 401(k) accounts to work in conjunction with their other investment accounts to save on taxes, manage risk, and achieve their retirement goals. For more information on how working with an advisor can help maximize your 401(k) savings, contact Hanover Advisors.

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