It’s not as well-known as “Fire Prevention Week” or have the immediacy of “Save Your Vision Week,” but “National Save for Retirement Week” is up and running (Oct. 18 – 25). Sponsored by a consortium of government agencies and financial services companies, its goal are listed as:
- Make employees more aware of how critical it is to save now for their financial future
- Promote the benefits of getting started saving for retirement today
- Encourage employees to take full advantage of their employer-sponsored plans by increasing their contributions
It’s certainly needed, as a study from member-firm ADP illustrates. Released in conjunction with the initiatives 2015 kickoff, the study, titled How Employers Can Extend Coverage and Simplify the Retirement Readiness Process, examined the retirement savings rates of approximately 10 million employees between the ages of 20 and 69 who earned total compensation of at least $20,000.
It found that only 40 percent of employees aged 20-24 are currently saving for retirement, compared to 65 percent of employees aged 55 and older, signifying the “start younger” message isn’t resonating.
“It’s no mystery that as employees age, they take retirement planning more seriously,” Joe DeSilva, senior vice president and general manage of ADP Retirement Services, said in a statement. “But playing ‘catch-up’ takes away employees’ ability to capitalize on the power of compounding earnings to help their retirement savings grow.”
In looking at the data, ADP continued to see more employees participating in their plan offering as they draw closer to retirement age. Salary deferral rates also increased with age, with employees aged 20-24 years deferring on average only 4.6 percent of salary, while employees aged 55 and older deferring on average 8.5 percent of salary. Additionally, even as employees race to catch up and save more, average savings levels never approach the optimal double-digit savings rates that are recommended by financial experts.
“We believe that providing plan participants with access to financial education throughout all stages of their career can help to reinforce the importance of retirement planning and increase their financial security,” De Silva added. “National Save for Retirement Week is a great time for plan sponsors to help participants reflect on their retirement plans and ensure they’re on track.”
Baby Boomers—those born between 1946 and 1964
- If you’re not saving—start: It’s better to have some money at retirement than nothing at all — it’s never too late.
- Try living on your retirement income now. By putting away more of your pay for retirement savings, you can add to your nest egg while adjusting to your new income level in retirement.
- If you are age 50 or older, take advantage of catch-up contributions.
- Review your asset allocation in your retirement plan account. Ensure your investments are appropriate for your age and risk tolerance.
Gen X—those born between 1965 and 1980
- Don’t wait to reach the catch-up contribution age of 50. Save more now to take advantage of compounding earnings.
- Maximize your savings during your prime earning years by choosing to automatically increase your retirement plan contribution every year. Check with your employer to see if your company’s retirement plan offers this feature.
- Save for retirement first. You can borrow for your child’s college education, and you can purchase long-term care insurance for elderly parents, but you cannot borrow for your retirement.
- Get an annual financial health check-up. Consider your personal savings, life insurance, investments, credit card debt, mortgage, and retirement savings.
Millennials—those born between 1981 and 1997
- Don’t wait to save until all your college loans are paid off. Save now to take advantage of compound earnings.
- Establish good money management habits; focus on saving, smart budgeting and planning for emergencies.
- Actively plan your retirement. Even though a retirement plan is offered by your employer, only you can take charge of your future financial security.
- Maximize your savings early in your career by choosing to have your employer automatically increase your retirement plan contribution every year.
- Consider contributing to a Roth 401(k), which may allow you to withdraw funds during retirement tax-free.