You know you’re supposed to save for retirement. If you needed yet another reason, Voya Financial, a retirement and insurance company that helps people plan for retirement, commissioned a study called the Voya Retire Ready Index to discover who amongst us qualify as “retirement role models.”
Are workers with steady paychecks coming in every two weeks better at saving for retirement? Or are recent retirees, who may be facing a loss or reduced stream of income, more prepared for retirement?
What they found was that, on a scale of one to 10, workers averaged only a 4.1, while retirees scored marginally better at 5.5.
The biggest obstacle? One word: Planning. Only one in three workers and retirees had a written budget or used a web-based retirement calculator. Less than a quarter of each demographic had a formal, written financial plan.
Nearly half of workers and 21 percent of retirees have $49,000 or less in total savings and investments. Even worse, 10 percent of both groups weren’t sure how much they had saved for retirement.
What makes saving for retirement so difficult? Let’s break it down…
1. The age of retirement keeps getting pushed back
Major financial disruptions such as an illness, losing your job, a divorce, or even buying a house can set you back in your retirement savings, forcing many Americans to work longer and postpone retirement. In fact, a recent survey by the bank TD Ameritrade found that two-thirds of Americans have had their retirement savings disrupted, and 34 percent of those say that as a result, they have to push back their retirement age to 68, on average.
“The key is to have a financial plan that incorporates risk management because no one knows when these disruptions can occur,” says Lule Demmissie, TD Ameritrade’s managing director of retirement. “Saving and planning for our retirement does not guarantee we will be 100 percent protected from disruptions, but what it can do is help shelter us from the unexpected.”
2. Outliving your retirement savings is almost too easy
There’s a lot to blame for this: People almost always assume they’ll need less than they do in retirement, they don’t consider that along with aging comes potential health problems, or they end up living longer than they expected to.
In the survey, having lower levels of savings translated directly into higher concerns about covering expenses once retired. Nearly 60 percent of workers were extremely concerned about outliving their savings, while almost a third of people who are already retired had the same concern.
But it’s not just their retirement savings that people are concerned about. A majority also worry about being unable to pay for health care expenses and being a burden on their family members.
What to do if you have nothing saved for retirement
There are plenty of excuses as to why you have nothing saved for retirement, but don’t let these prevent you from doing what’s best for your future.
If you’re still working: Good news, you’ve still got time. But the clock is ticking. Here’s what you should do if you can:
- Contribute to your employer’s 401(k) plan, or start your own if you’re self-employed.
- Open an IRA — the sooner the better. Because it uses compound interest, it’s a smart choice for younger or even middle-aged workers.
- Make a savings plan by sitting down and tracking all of your expenses for a month, then adding and subtracting expenses you’ll have in retirement. For example, you won’t need to budget for commuting costs or a professional wardrobe anymore, but you will still need to pay income taxes on the money you take out for retirement if it doesn’t come from a tax-free account.
If you’re a recent retiree: Hopefully you’ve got at least something saved for retirement, but if you don’t, here’s what you should do:
- Stop spending money on everything that isn’t absolutely essential, and put it into an IRA or other tax-free retirement account right away.
- Consider working a few extra years, even if it’s a part-time job.
- Research your options. Social Security has its benefits, so even though you probably won’t be able to live on that alone, waiting until you’re 67 to start claiming your benefits is much more beneficial than taking it out at age 62.