Your Retirement: Don't Be Another Statistic

September

Your Retirement: Don’t Be Another Statistic

September 2, 2024

Americans are not saving enough for retirement.

In a report entitled Americans Face Alarming Retirement Savings Shortfall, the National Institute for Retirement Security shares, “Most Americans will not have enough money for a financially secure retirement. […] NIRS research found that for Generation X, a generation that is quickly approaching retirement and the first that will retire largely without pensions, the bottom half of earners have only a few thousand dollars saved for retirement. This means the vast majority of Gen Xers are not even close to having enough savings to retire. And when Americans don’t have adequate retirement income, they are more likely to fall into poverty or turn to public assistance programs or families to make ends meet.”¹

This is a major problem.

Even if you have saved enough money for retirement, it’s a guarantee that you know someone else who has not.

There are many reasons why Americans are not saving enough for retirement.

Take some time to read about the reasons so many are not saving enough for retirement and consider how they can improve their situation.

If there is someone in your life who does not seem to be saving enough for retirement, we encourage you to show compassion and share these tips with them.

Social Security Is Not Enough for Retirement

Many Americans believe they can rely on Social Security during their retirement years.

Unfortunately, Social Security does not provide enough money for most Americans to live comfortably during retirement.

The average retired worker’s monthly Social Security benefits in 2024 is $1,827. For couples receiving Social Security benefits, it’s $2,972.

While this is certainly better than nothing, it is not enough for retirement, given inflation and rising medical costs.

Experts suggest the cost of retirement is 80% of your pre-retirement income.

Let’s say a couple earns $120,000 annually. If you follow the 80% rule, they should expect to earn $96,000 annually, which equates to $8,000 a month.

$8,000 a month is significantly more than the $2,972 they can anticipate receiving from Social Security.

The couple would need an additional $5,000 to reach 80% of their pre-retirement income.

The truth is, Social Security is NOT designed to cover the bulk of your pre-retirement income.

According to the Social Security Administration, “For someone with average earnings who retires in 2024 at age 65, Social Security benefits replace about 39 percent of past earnings.”²

However, reports have found that 40% of older Americans rely solely on Social Security for retirement income.³

Pensions Are a Thing of the Past

not saving enough for retirement

It is no longer common for employers to offer pension plans to their employees.

According to a congressional report, “Between 1975 and 2019, the number of people actively participating in private-sector pension plans dwindled from 27 million to fewer than 13 million.”⁴

Pensions typically provide a guaranteed monthly benefit check to retirees.

Today, more employers offer 401(k) plans, which require employees to save up for their own retirement.

David John, a senior strategic policy adviser at the AARP Public Policy Institute, explains, “The beauty of traditional pensions is that I work, I don’t really have to deal with any investment returns… and then I retire, and I get essentially a retirement paycheck on top of my Social Security. [With a 401(k)], you have to make a decision at the end of your working life: ‘What am I going to do with this money?’ And that is a complex and confusing decision that one has to make.”⁵

401(k) Knowledge Is Weak

not saving enough for retirement

With Social Security not providing enough and pensions being almost nonexistent, it means Americans must utilize 401(k) plans to save for retirement.

However, 63% of Americans don’t understand how a 401(k) plan works.⁶

This is a major problem!

If the bulk of your money is in a plan that you don’t understand, chances are, you may be behind on retirement savings.

If you’re contributing money to a 401(k), you need to know how the plan works so you can get the most out of it.

Americans Lack Financial Literacy

not saving enough for retirement

It’s not just a lack of understanding of 401(k) plans; it’s also a general lack of financial literacy.

Generally, financial literacy is not taught in schools.

Without a solid financial education, Americans grow up without enough knowledge to save adequately for retirement.

As a result of lower financial literacy, older Americans may make poor financial decisions.

How to Better Prepare to Retire Comfortably

not saving enough for retirement

Now that we know the reasons why Americans are not saving enough for retirement, let’s look at some ways they can turn things around.

Begin financial planning. Review your current savings and consider your future needs.
Plan within Your Means. Take a realistic approach to retirement saving. Rather than attempting to save for a retirement that is out of reach, plan within your means. Calculate how much you expect to receive from social security. Then, figure out how much more you’ll need to retire safely.
Take Advantage of Company Matching. While you have access to an employer-sponsored 401(k) plan with company matching, take advantage of matching contributions. Make it your goal to always contribute at least enough to receive this free money.
Boost Contributions. Knowing the high cost of retirement, make every effort to boost your contributions. For those closer to retirement age, take advantage of catch-up contributions.
Wait to Retire. The longer you wait to withdraw social security, the better. The Social Security Administration explains, “The age you stop working can affect the amount of your Social Security retirement benefits. We base your retirement benefit on your highest 35 years of earnings and the age you start receiving benefits.”

You should also wait to withdraw from your 401(k). Even if you are tempted to take an early withdrawal, wait it out. This will help you avoid penalties.

Continue to Learn. It’s never too late to learn. Just as you are reading this article explaining why some Americans are not saving enough for retirement, you should read other financial articles. Subscribe to newsletters. Watch YouTube videos. Listen to podcasts.
Speak to a Professional. Even if you have basic investment knowledge, speaking to an expert may change the performance of your account from good to great…and potentially boost retirement savings.

If you have questions about your 401(k) or if you need help, we’re here for you. Click below to book a complimentary 15-minute 401(k) Strategy Session.

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