[Editor’s Note: Because of the holiday, some readers might have missed this article that was published in our Afternoon Edition last week. As it generated a heavy response from readers and many thoughtful and insightful responses, we are rerunning it today as a morning Investing Insights column, along with a link to the original article so that you can join into the conversation.]
The IRS recently announced cost-of-living adjustments affecting pension plans and other retirement-related items for tax year 2015. For example:
- The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $17,500 to $18,000.
And …
- The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $5,500 to $6,000.
But will those increases mean anything to many Americans? We think not. Here’s why …
A Wells Fargo survey of middle-class Americans has uncovered that the majority have only saved about $20,000 for retirement, which is down from $25,000 in 2013. The estimated need is more like $250,000.
Thirty-four percent of working middle-class adults in the U.S. are not even contributing a dime to a 401(k) plan, an IRA, or any other type of retirement savings plan, according to this recent survey which followed more than 1,000 adults between the ages of 25 and 75 with a median household income of $63,000.
Those who are putting money away for retirement say that they are currently reserving $125 every month. Fortunately most of those surveyed — about 61 percent — say that the savings is not much of a sacrifice. Thirty-eight percent say that this long-term investment is a big sacrifice.
About 55 percent, however, say that they plan to save later since they got a late start on retirement savings.
 |
| More than half of non-retirees without access to a 401(k) plan say “it is not possible” to pay bills and “still” save for retirement. |
Wells Fargo’s director of institutional retirement, Joe Ready, says, “The main message here is people are putting off saving, and they are losing the benefit of long-term compounded earnings. Kicking the empty can down the road is going to be detrimental to their retirement security. It’s really a problem.”
The worst of it, of course, is that it is not very easy to make the kinds of changes necessary to begin putting money away for savings. However, even just a few dollars a month — in a fair-yielding retirement account — will eventually pay off the kinds of dividends necessary in retirement.
The survey also shed light on several other things: More than 30 percent of the middle class believe they will not have enough money to survive retirement. About 70 percent actually have some kind of savings plan through an employer.
On average, people with access to a 401(k) plan will save ten times more than someone who does not have one.
How have you prepared for retirement?
Are you contributing to a 401(k) or IRA? Or are you among those who are counting on Social Security for the majority of your retirement income?
And if you are retired, tell us how you put aside money during your working years. What sacrifices did you make so you could retire comfortably? Please share your experiences — positive and negative — with your fellow readers in the Money and Markets comment section.
Best wishes,
George Lambert
{ 8 comments }
“About 55 percent, however, say that they plan to save later since they got a late start on retirement savings.” REALLY? Who are they kidding? Only their ignorant selves! by such back-assward reasoning? The time to start saving was yesterday; if they got a late start on retirement savings, planning now to “save later” is no more than a plan to certain failure.
Instead of cocktails at the club or a six-pack at home each night, try drinking water and save the alcohol expense in a retirement account. Alcohol is nothing more than a self-indulgent weakness. I had no problem with it except its unnecessary expense so I quit years ago. You can easily make your own coffee at home, leave the mocha-crappachinos in the store, and keep the big annual expense in a retirement account. Instead of a life-robbing smoking habit, get truthfully serious with yourself about quitting, treat yourself to better health and life, and save both the cost as well as exorbitant future out-of-pocket medical expenses. By my own example, I’m proud to say I quit smoking over 17 years ago. At 1.5 pks. per day and average cost of, say $6.00 per pack, I’ve saved $3,285 per year, and $55,845 in 17 years while increasing my lifespan by a very reasonable 5 – 10 years. So, don’t tell me you just can’t save, or that saving is too hard – you’ll do it later.
What this really points out is that the typical American’s money problem is not saving as much as it is foolish and irresponsible spending – too much of the wrong and unnecessary things for too long. Instead of utilizing basic necessities, we are pushed by government, commerce, and public opinion to pay extra for brand names, new cars, ostentatious houses, and unnecessary products, just to “keep up with the Joneses” because that’s what they buy and use. I say who the hell are the Joneses that I should keep up with their irresponsible spending? Don’t tell me you can’t save; that saving is too hard; or that you just want to live for today and tomorrow will take care of itself. Remember, you can’t live in the past, you can only learn from the past so as to live better in the future. But without saving now, steadily and for a long-term, you truly have no future.
Cal, you were raised right! Let the Joneses keep the economy rolling while we squirrel our money away. We saved a lot, but an unfortunate end in a rest home would break us quickly so maybe spending it along the way and letting the government house us at the rest home would have been a smarter plan.
Marj, How do you know that when you need the Fed Gov to pay for your nursing home they still will be paying for nursing homes. That is why they sell long term care insurance. The national debt is now $ 18 trillion and it will grow faster as more baby boomers retire. Fed Congress can change the rules. You cannot count on anyone other than yourself for your retirement. Please look at http://www.usdebtclock.org, It will amaze you.
The more interesting part of this question is, how much $’s is enough? It is a hard one to answer when you are younger and struggling. The reason why this is so important is that you tend to challenge yourself more, the older you get. No one wants to leave the planet without having a good look around and an opportunity to reflect. So you never want to get to say 85 and say If only I had done this when I was younger. How much is enough? It is different for each one of us.
I also say how much is enough. I feel you live today and plan for tomorrow by managing
on what you have. Your needs change threw the years. When my childen were younger,I had a larger insurance policy. When I changed it my payments were less and I had more money to do other things with. I like to travel. That takes money so I do not save a lot. I have known people that never took a vacation. they just saved their money for a rainy day. Well, they passed away before the rain came. Tomorrow is not promised to anyone,so live each day and make the most of it.
For me I own a small business that has always struggled and didn’t save when I was younger but later in life i learned about money management. So i did a section 79 for my oldest son so he at age 32 is set with an income when he turns 65 triple his current salary. My other kids I am diligently putting the max in roth Ira’s(with there help) so at 20 and 22 they are up over 20,000 and I believe if I can continue till they are at least 35 it will be enough for them if they can continue after that.But it is a very large sacrifice for my company but very important to me for them so we shall continue to be responsible and for me approaching retirement I am set but really started to late in life.
With Communists imbedded in high government positions, our economy is sure to be damaged by continued central planning. To make matters worse, spending and debt will eventually deep six our currency. How much is enough may not answer the question. In what form do said savings need to be held? I fear that when it finally hits the fan, having real money may be the only salvation.
I retired by living well below my means. I also had a bit of help (and luck) in the stock market buying and selling individual stocks. I retired at age 58 with 1.5M in savings (1.1M after tax and 400K in an IRA). However, in retrospect, I believe an individual needs 2M to retire worry-free at my age. Six months into retirement, I continue to try to grow my net worth. My goal is to get to 1.8M within five years, then diversify away from the risky growth stocks that are now the horses pulling my financial cart.