Written by: Bill Cardwell, CFP® 08/09/2016
Here is the problem – We don’t save enough
A September 26, 2016 article in the Washington Post stated that 71% (Seventy-One Percent!!!) of Americans aren’t saving enough for retirement. Two-Thirds of Americans are not currently saving any amount to a 401(k) or other qualified plan according to U.S. Census Bureau research. Do you fall under one of these categories? If so, it isn’t too late to right the ship. The earlier you can establish a plan for saving, the more flexibility you will have in the future to create the retirement you desire.
Ok, so 71% of Americans are underfunded for retirement, how did we get here? One of the main reasons is the shift from company defined benefit plans (pensions), to defined contribution plans (401(k)s, IRAs, 403(b)s, etc.). While not exactly new, 401(k)s and IRAs weren’t as highly depended on by the previous generation due to safety. As recently as the early 1990s, 35% of all private-sector workers were covered by pensions. Today, only 6% of millennials are accruing or have a traditional pension. Even though we are more responsible than ever for saving for our own retirement, the percentage of income the average investor saves has not increased over time. Thus, we now have a shortage of retirement savings.
How do we solve this problem?
If you haven’t started, begin saving to your company’s plan or your own retirement account. Come up with a savings plan to help you achieve your goals. Form a relationship with an adviser that can help keep you accountable to the savings plan. Push past the common excuses below, and reap the rewards
Top 5 Reasons You Aren’t Saving (and why that isn’t really a good excuse):
1. “I don’t have access to a plan through work.”
If your employer does not offer a qualified plan, there are other ways to save. Depending on your income, you could contribute to a Traditional or Roth IRA. Or, if your spouse is covered in a 401(k) or 403(b) you can save additionally through his or her job.
2. “I can’t afford to save yet.”
Start small, increase as you go along. Look, I totally get it (I’m right there), between student loans, high housing prices, and just living life it is hard to give up any room in the budget for the future. Starting with a modest number and increasing as you reach milestones (raises, paying off debt, marriage, having children, etc.) is an excellent way to at least get started. I promise you this, you will thank yourself later. The more you put off devising a retirement plan and beginning to save and invest money, the more challenging your retirement is likely to be. One reason procrastination is so bad is that the earliest dollars you invest are the most powerful ones, as they have longest to grow.
“If your company offers an employer match to your plan, and you aren’t saving at least up to the match, you are giving away free money and not maximizing your employee benefits!”
3. “My Company doesn’t match my contributions anyway.”
Fortunately, there is still hope. The IRS allows you to put up to $5,500 in 2017 ($6,500 if you are 50 and older) into an IRA and Roth IRA each year. You control the investments, where they are held, and how aggressive or conservative you would like the underlying investments to be.
4. “Not worried about saving, I’ll just live on Social Security”
I’m all for living cheap, but the average social security benefit for retirees 65 and older is $1,348 per month (That is only $16,176 per year!). To what extent social security will be around for us in retirement is up for debate, but it should always be used as a compliment to your retirement income (not 100% of it).
5. “This is all so confusing, I have no idea where to even begin!”
I know a guy that can help! In all seriousness, get in to see a financial planner (preferably a CFP®) or adviser that you trust. It shouldn’t cost anything to have a conversation to see if you are on the right track. There are also educational tools that can be provided to you to help you learn more about the process and how to take full advantage of every opportunity.
Happy Saving Everyone!
Bill Cardwell CFP®
Bill Cardwell is the founder and President of Aurora Financial Strategies, a financial advisor practice based out of Kokomo, Indiana. He can be reached at firstname.lastname@example.org or by calling (765)438-4682. Advisory Services are offered through Creative Financial Designs, Inc., A Registered Investment Advisor, and Securities are offered through cfd Investments, Inc, a Registered Broker/Dealer, Member FINRA & SIPC. Aurora Financial Strategies is not Owned or Operated by the CFD companies