If you haven’t started saving for retirement, you’re not alone. More people than you might realize are also in this situation.
Results of a recent GOBankingRates survey revealed most Americans haven’t begun putting money aside for their golden years. Even among those who have, the majority has only saved $10,000 or less.
Here’s a look at the results.
| $10,000 or less | 26.57% |
| $10,001 – $30,000 | 7.86% |
| $30,001 – $50,000 | 7.06% |
| $50,001 – $70,000 | 3.88% |
| $70,001 – $100,000 | 4.28% |
| $100,001 – $300,000 | 6.47% |
| $300,001 – $500,000 | 2.29% |
| $500,001 – $700,000 | 1.39% |
| $700,001 – $1,000,000 | 1.49% |
| $1,000,001+ | 1.89% |
| I have not started saving for retirement | 36.82% |
Melissa Shaw, wealth management advisor at TIAA, said the results of this survey are alarming and worrisome, but she isn’t surprised.
“The fact that 63.39% of respondents have between nothing and $10k saved for retirement should concern us all,” she said. “But the survey results may not tell the whole story.”
She said generational factors might play a role in this lack of savings. For example, she noted that younger respondents simply may not have had enough time to focus on retirement savings yet.
“The oldest Gen Zers are around 26 years old and haven’t been in the job market very long,” she said. “We would expect their savings balances to be lower at this point in their careers.”
Additionally, she said factors such as wage gaps, lack of employer-sponsored retirement savings plans and a lack of financial literacy may also be to blame.
Robert R. Johnson, PhD, CFA, CAIA, professor of finance at Heider College of Business at Creighton University, also said the findings of the GOBankingRates survey are what he would expect. He said much of this can be explained by behavioral finance, which is based on the premise that humans often succumb to behavioral biases.
“One of the biggest behavioral biases that humans succumb to is the bias toward immediate gratification over delayed gratification,” he said. “That is, our present selves tend to win over our future selves.”
Ultimately, he said this can make it difficult for people to prioritize retirement savings.
“It is exceedingly difficult for many people to imagine their future self and give up that vacation or new car today in lieu of having money to retire on in the distant future,” he said.
7 Tips To Save for Retirement
If you are feeling discouraged because the results of the GOBankingRates survey hit close to home — i.e., you haven’t started saving for retirement or you’ve saved less than $10,000 — don’t fret too much. No matter what your age, it’s never too late to start saving.
Use this expert advice to help get your retirement savings on track.
1. Make It Automatic
The best way to start saving for retirement is to have your contributions automatically deducted from your paycheck, Johnson said. In time, this will help you make saving money a habit.
“For instance, have an amount taken out of each paycheck and put directly into an investment fund — most appropriately a low cost stock index fund,” he said. “This strategy means you will be putting money into the market whether stocks are rising, falling or treading water. You will practice dollar-cost averaging and build significant wealth over the long run.”
2. Don’t Let Spending Increase With Salary Increases
“The most common mistake people make is letting their spending increase commensurate with their new salary,” Johnson said. “For instance, people move into a bigger apartment or buy a more expensive car or home to reward themselves for receiving the raise.”
He said when this happens, you’re unable to improve your financial condition, because you’re spending your entire paycheck. Instead, he recommended pretending like you didn’t receive a raise and investing the extra money.
“If you simply invest that $5,000 annually into an investment account growing at a 10% annual rate, you will have accumulated over $822,000 in 30 years,” he said. “You will have invested a total of $150,000 and have earned $672,000 from those investments.”
3. Take Some Risk
“The biggest mistake many people make in investing for retirement is not taking enough risk,” Johnson said. “Individuals need to be taught to invest and not to save for retirement.”
He said many people are overly conservative with their asset allocation, especially in retirement accounts. However, he said the type of risk you take matters.
“Now, taking more risk doesn’t mean ‘swinging for the fences,’ he said. “There are prudent ways to take risk and stupid ways.”
He said taking risk in unproven assets like cryptocurrencies or meme stocks is popular with many, but not necessarily the best idea.
“Investing in speculative assets is not prudent risk-taking,” he said.
4. Don’t Over-Invest in a House
“Home ownership is not a very effective way to accumulate long-term wealth for retirement, despite conventional wisdom suggesting the contrary,” Johnson said. “Many people continue to believe the myth that residential real estate is the best long-term investment, and the evidence simply suggests otherwise.”
He said people often put too much stock in the idea of realizing substantial gains by purchasing a home and selling it at a much higher price many years later.
“People often ask mortgage bankers how big a mortgage they can qualify for and anchor their homebuying decision on houses at the top of their range,” he said. “The problem that people get into is that too large a portion of their monthly income is consumed by mortgage payments, effectively crowding out other more lucrative investments, like building wealth in the stock market.”
5. Use Financial Wellness Tools
Not sure how much money to be putting aside for retirement or where to find it in your budget? Use financial wellness tools that might already be at your disposal.
“Start by getting an accurate financial snapshot, so you can set achievable financial goals,” said Ralph Ferraro, Senior Vice President at Lincoln Financial Group. “Many employers offer a financial wellness program — including tools to create a personalized action plan and improve financial well-being, from spending to saving to debt and protection.”
6. Maximize Employer-Match Contributions
If your employer offers a retirement plan with an employer-match feature, Ferraro said to take advantage of it.
“Retirement may seem like a long way off, but by saving early, employees can get the benefit of compound interest,” he said. “A good rule of thumb is to save at least 10% to 15% of one’s pay, but if that feels out of reach, start where you can and try increasing contributions by a little each year to see big changes in total savings over time.”
7. Meet With a Financial Professional
You don’t have to figure out your retirement savings on your own. Ferraro recommended meeting with a financial professional to create a plan.
“Everyone can benefit from personalized guidance,” he said. “A financial advisor can help you take a holistic view of your finances, from accumulation to protection to distribution, helping ensure all considerations are taken into account and planned accordingly.”