Are you saving for your retirement? Chances are you are, or you may be one of the one in ten who is not saving anything towards retirement. That is a shocking number, but it was found in a survey that accompanied Bankrate’s Financial Security Index for the month of August. And it seems the number of people not saving for retirement is increasing despite the improvement in the economy.
In a national telephone poll that included several personal finance questions, it was discovered that when asked how much people were contributing to their retirement as compared to last year, 10% said they added nothing. According to Bankrate, that is the highest level since first asking the question in 2011. But there was some positive news from the survey and the asking of that question. 19% said that they are saving more this year compared to last. And 14% said they were saving less, but that is down considerably from 29% in 2011. Finally about half said that they were saving about the same as the previous year.
It is not only important to save for retirement but to save more from year to year to protect yourself and your retirement. By doing this, it will help elevate many people’s worries about when or if they will be able to retire. BY planning now you can ensure you can retire and live within your means. Due to the Great Recession and inadequate savings prior to the financial collapse many people were not saving adequately and, as a result, many people are finding themselves working well into their 60’s. Combine this with a decline in pensions and it becomes even more vital that people save as much as they can for as long as they can to ensure they will be able to retire. Long gone are the days of working for a single company for 30 plus years and then collecting a nice pension during retirement. And to make matters even worse it is reported that many businesses are cutting back on even offering retirement accounts to their employees. In a study conducted in April by The New School’s Schwartz Center for Economic Policy Analysis only about 53% of American workers were even offered a retirement account at work in 2011, down from 61% in 1999.
In these various surveys and polls, different age ranges had different results but it seems millennials were least likely to save. Workers aged 18 to 29 were found to be the least likely to be saving for retirement. Democrats were twice as likely as Republicans to state that they were saving more this year than last. People earning less than $30,000 annually were found to be the most liable to be not saving at all. And college graduates were more likely to save more while those who did not attend college were the most likely not to save at all.
Just about every financial planner including myself will all agree that the key to a successful retirement is to save as much as possible as early as possible. The key here is to let your money have as long as possible to work for you and to let compounding maximize your retirement savings. While returns vary from year to year and from asset class to asset class a relatively safe assumption is if you invest in equities you should average an 8% return over the long haul. That means that someone who saves $5,000 a year from 25 to 65 will amass about $1.3 million in their retirement account. Someone who waits just ten years to start saving at age 35 under the same conditions will only save about $570,000 or less than half the amount of the early saver. This is a dramatic difference for someone who is planning a retirement based on their savings. It also shows just how important it is for someone young to save as much as they can as early as they can to have enough in their retirement years.
No matter what it is also imperative to increase your savings rate from year to year as well. Always contribute the maximum to get full advantage of the company match is your company offers one. Otherwise, you are leaving free money on the table and an instant return on your investment. Then increase your contributions by 1% a year until you are contributing the maximum allowed by law. And the maximum does increase on an annual basis as a rule so keep up with contribution levels. If you cannot increase your contributions, 1% then increase then in some smaller percentage even if it is $50 a month. A modest increase is better than no increase at all.
It is critical to contribute to your retirement accounts and to contribute as much as you possibly can. More and more people are becoming more and more responsible for their retirement. I am not one of the people who say Social Security will not be around when you retire, but I do think it will look and behave in a different manner. I think the benefits will be adjusted as will the full retirement age. These are actions that will become mandatory if the system is to survive for younger workers. Pensions are already becoming a retirement tool of the past with fewer and fewer companies offering them to employees. That leave 401(k) and IRA plans as your new retirement best friend. So take full advantage of them now to ensure your retirement years will not suffer.
If you have any questions or need any further help, do not hesitate to contact me.
