Is there a “retirement crisis”? Reading media reports about retirement savings might give you a vague sense of panic about your future. Consider this sampling of recent articles:
Reading those and other stories will likely leave you in a state of despair. After all, you’re probably not saving enough, and even if you are, you’re probably making all kinds of mistakes, right?
Not necessarily. Let’s set aside the scaremongering, take a deep breath and look at the realities of retirement saving.
To start with, it’s true that most Americans could-and should-do better at saving for retirement (a point we’ve made before here at Project Invested).
Take one recent example: A 2016 survey of American workers by the Transamerica Center for Retirement Studies found that the median Baby Boomer, now entering their retirement years, has $147,000 saved for retirement. While there is no guaranteed amount necessary for an adequate retirement, it is little wonder the same survey finds that more than half of workers cite their top retirement fear as “outliving my savings/investments.”
Those findings square with many other government and private reports that point toward an indisputable conclusion: most of us should do more to save for retirement.
But at the same time, there are indications that things aren’t quite as bad as some of the media reports have it:
- First, Americans who do have access to employer-sponsored retirement accounts are increasing their contributions. In 2015, workers put 6.8% of their salaries into 401(k) and profit-sharing plans, up from 6.2% in 2010, Bloomberg reports. In addition, employer contributions have remained steady for the past few years at 4.7%, which when combined with the employee contribution provides savers slightly more than the 10-15% target many experts advise.
- Many employer-sponsored 401(k) plans have embraced auto-enrollment, the Bloomberg article notes, so workers are now being automatically enrolled in retirement plans and have contributions to their retirement accounts deducted from their paychecks, rather than having to opt in. That simple administrative change is boosting participation in retirement plans. It could be a particular benefit for younger workers, who may now see more of the compounding benefits of time, boosting their portfolio’s growth over a period of decades.
- While the aforementioned Transamerica retirement survey found several areas of concern, American workers are still optimistic. Sixty-two percent of those surveyed are “confident that they will be able to retire with a comfortable lifestyle,” even if they have anxieties about health care costs and the viability of Social Security.
- A 2016 study prepared by Merrill Lynch and Age Wave, “Leisure in Retirement: Beyond the Bucket List,” based on surveys of retirees, found baby boomers are embracing their next stage with confidence and contentment. Ninety-two percent report an increase in their flexibility and freedom, “regardless of how much money they have”-a phenomenon the study’s authors characterize as “time affluence.” Many retirees use that newfound freedom to embrace new interests, reconnect with family, volunteer and even open businesses.
None of this is meant to suggest you should be complacent about your retirement savings. But rather than falling prey to free-floating anxiety about the future, focus on taking constructive steps to improve your future outlook, such as:
- Have a plan. Make a retirement plan and stick to it; assess your progress regularly to determine how you can improve.
- Maximize your opportunities. Sign up for your company retirement plan and find out how to maximize your employer’s matching contributions, if available. If you’re eligible for other types of tax-advantaged retirement accounts, take advantage of those as well. Already enrolled? Then consider boosting your contribution at your first opportunity. On your own in the gig economy? Check out this helpful guide for freelancers and self-employed workers.
- You don’t have to go it alone. If you’re unsure of how to proceed, talk to a financial professional who can help you develop a personalized saving and investing plan that reflects your time frame, risk tolerance and retirement expectations.
The reality is that fewer of us can count on the defined-benefit pensions that many workers received just a few ago decades ago. Contrary to popular belief, that’s not necessarily a bad thing. The rise of personalized retirement accounts like 401(k)s as well as Individual Retirement Account (IRAs) have expanded retirement savings opportunities and helped to foster an economy where workers can change jobs or careers without fear of losing access to part or all of their retirement savings, as was common in traditional pension plans.
But even with their many advantages, these types of retirement accounts put more responsibility on individuals to plan and save for themselves. As Americans live longer, and must contend with rising health care costs, it’s imperative to save and invest as much as possible.
And even if you’ve neglected your retirement planning and are getting a later start, you can still make up ground and put yourself into a better position for the future. Even a modest boost to your retirement savings today can make a big difference in the future.
But the most important step you can take right now is to take control of your own future by making a retirement savings plan-and then putting it into action. Don’t fall victim to a sense of helplessness and futility. Take positive steps now to make yourself better off the future.