Inside: Well over a third of Americans will retire broke. Find out why and how you can get ahead of the game and amp up your retirement savings.
If you have anything saved for retirement, you are ahead of the game. Really.
While browsing various retirement articles, facts, and figures (exciting evening reads here people), I grabbed a glass of wine because the outlook for Americans is dreary.
But it isn’t all bad news.
So, what do these recent studies say? Would you believe that a study from the federal reserve found that 28% of non-retired adults have nothing saved for retirement? That study slightly predates one from GOBanking that found only 14% had nothing saved, but 42% total had less than $10,00 saved for retirement.
However, it isn’t all doom and gloom. Last year’s headline stated over half (51%) of Americans would retire broke, in contrast to this year’s figure of 42%. Unlike previous years, this last year showed we are headed in the right direction.
People are starting to wake up and save. But why are so many adults not preparing for retirement and how can you start saving, or save more?
Why people don’t save for retirement
Don’t have the money
Let’s face it, not everyone has a great job with a good income. Money can be tight. In fact, 40% of respondents in the survey that had nothing saved said they didn’t make enough money to be able to save for retirement. The second-most common response was that they were struggling to pay bills.
Related post: How to Save When You are Broke
Employer doesn’t offer a retirement plan
Not all employers offer a retirement plan to their employees, or employees may not qualify to participate in a plan given the number of hours they work. Of those that hadn’t saved anything, about 9% stated that their job doesn’t offer a retirement plan.
Access to a 401(k) or similar plan provides an easy way to save for retirement. The easier the process, the more likely someone is to do it.
Saving isn’t a priority
Last year the survey found that 40% of respondents said saving for retirement just wasn’t a priority for them. Whether it is because people are paying for daycare, college, or the next fun vacation, retirement savings have taken a back seat.
Some people plan on relying on social security income to pay their bills in retirement. To be successful at that, you need to be really really frugal. Why? The average social security benefit in 2017 was $1,369 per month or $16,428 per year. If we are being realistic, it is highly unlikely that amount of money will get you very far. Think rent or property taxes, food, healthcare (oh boy, healthcare), utilities, and more.
Will social security even be an option in a couple decades? I’m not so sure anymore.
How to save for retirement (or, not retire broke)
Start small if money is tight
There are accounts and apps you can use to start investing your spare change such as Acorns, Stash, and others. These platforms allow you to start investing with a very small amount of money.
Pay yourself first
Not feeling the love for apps? Alternatively, you can set up automatic payments from your paycheck to a retirement or separate savings account. Once the automatic payments are set up, you are saving without having to think about it each month.
Both of these options are great to start out because you can use the power of compound interest to boost your savings. Starting the process early makes it even easier to ensure you have enough saved for retirement.
Get your 401(k) match
If your employer does offer a 401(k) or similar retirement plan and offers a match, then take it! It is free money!
How does it work? Let’s say your employer will match 50% of your contributions up to 3% of your salary. Now, that’s not a great match, but it is better than nothing.
So, if you earn $60,000 per year, then 3% of that is $1,800. So, if you contribute $1800 or more to your company-sponsored retirement plan, the company will throw in another $900, which is 50% of the $1800. By doing the bare minimum to get the full match, you are contributing $1800, the employer adds $900 and you end up contributing $2700 to your retirement plan for the year.
Some employers have a much more generous match and some have no match, so check with your HR department for details.
Go beyond the match
If you are already contributing to your 401(k), try going beyond the match. Not only are you adding more to your future retirement fund, but by contributing pre-tax dollars, you are reducing the amount of take-home pay that will be taxed. For 2020, the maximum you can contribute to a 401(k) is $19,500, or $26,000 if you are over 50 years old.
Need help figuring out how to invest in your 401(k) or managing the account? There are services available such as Blooom.
If you don’t have access to a 401(k), 403(b) or similar, there are alternatives for retirement savings. Take an evening to check out your options and set up an account.
Take action now to have a comfortable retirement
If saving hasn’t been a priority for you, then getting started now is better than later.
You may want to calculate how much you anticipate needing in retirement. There are many online retirement calculators available. Nerdwallet has one that is easy to use. I like to use the planner in our Personal Capital account as it runs through permutations and uses information from our current savings and investments.
Even saving a little each month can keep you from retiring broke.