A GoBankingRates.com survey found that of 2,003 adults, 45.5% had nothing saved for retirement. Another 18.8% had less than $10,000 saved.
What is concerning is 48% of adults who said they considered saving for retirement but have assigned it little to no importance in their lives. Many survey respondents (60%) said they cannot save for retirement due to a lack of money and/or too many bills to pay. Certainly, slow or stagnant wage growth is a large contributing factor to Americans’ inability to bulk up their retirement savings. However, it appears too many are unable to prioritize saving for retirement and/or do not fully comprehend its importance in one’s ability to retire comfortably.
For millennials and younger, saving for retirement is imperative when considering rising health care costs, increasing longevity, impending insolvency with Social Security, and the steady decline of work benefits such as pensions. The safety net is growing thinner, which puts the onus directly upon individuals to save.
It is important for the younger generations to begin saving towards retirement as early as possible. Considering the impact of the compounding effect on retirement savings accounts, the earlier an individual socks funds away towards retirement, the faster their money grows in their accounts. Taking advantage of compounding interest is a first, crucial step to creating wealth. Only 46% of millennials have any amount saved for retirement, and Generation Z even less at 37%.
To get started with retirement savings, individuals should first compose a personal budget and find ways to consistently spend less than what they earn. If they have debt, attention should be devoted to paying off high interest debt (credit cards) first, and making sure the balance is paid every month. Only paying the minimum payment every month equals profit for credit card companies.
If the individual’s employer offers a matching 401(k) contribution, the employee should at the very least put in the amount needed to receive the maximum matching contribution from their employer. Skipping this step is losing out on “free” money.
In terms of budgeting, individuals up to the age of 40 should plan on contributing at least 15% of their yearly pretax income towards retirement. Saving more will help individuals retire faster. Saving less means putting off retirement. However, many young people entering the workforce with student loans and other obstacles may find it easier to work their way up gradually to a 15% retirement savings goal.
Once an individual reaches a 15% retirement savings rate, choosing investments may be the next step. Working with a financial advisor who acts as a fiduciary (who are legally required to serve in the client’s best interest) may better enable the individual’s wealth to accumulate during the ebb and flow of buying a home, raising children, careers, and retirement.
If you are interested in working with a financial advisor and fiduciary, please contact us at 515-557-1860 or email us at firstname.lastname@example.org. We offer financial planning and investment management services to clients across the U.S..