Marijoyce Ryan, The Daily Record Newswire
After multiple decades of declining traditional pension plans and increased access to 401(k) savings plans, how prepared for retirement is the average American worker? By all accounts, the answer is that we are not very prepared.
Here is a breakdown by age as published by the Federal Reserve:
% of those with no
Age retirement savings
18-29 40
30–44 28
45–59 23
60+ 15
Overall 31
Here is a breakdown of estimated 401(k) assets as published by Vanguard and Fidelity:
Age Group Amount
Gen Y (22–34) $16,500
Gen X (35–48) $63,600
Baby Boomers (50–67)
$126,900
55 and Older $150,300
Overall Average $101,650
Those with higher income have higher 401(k) assets while those with limited income or resources indicated that they simply have few or no financial resources for retirement. Another factor is that while only three-fourths of private sector workers with full-time jobs have access to a retirement plan, the number drops considerably, just over one-third, for part time workers.
Also, with so many Americans working two or three part-time jobs, many are living paycheck to paycheck and do not have extra dollars to invest in a 401(k). Many, fully 45 percent, are counting on Social Security as their primary source of support in retirement. This is rather alarming when you take into account that most seniors will pay over $230,000 in out-of-pocket medical expenses during retirement.
So, considering the above, what can be done? Truth be told, looking back, most people probably could have saved more through the years. Ironically, one of the largest factors cited by those as a the reason they are not saving more is due to overspending — restaurants and coffee shops are cited by many as the largest of excess expenditures. Going back to basics is probably best for all of us when considering our financial health in retirement:
If you are not already participating in your company’s 401(k), start now — no matter how small your contributions. Try to save the maximum. If you cannot afford to do so, save to the point where you are feeling the impact in your take home pay. Increase your savings rate when you receive pay increases.
The younger you are the more you should have in stocks. Over longer periods of time, stocks provide healthy returns and help “create” wealth through the power of compounding. Do not make frequent or large changes in your investment fund allocations. One of the largest factors contributing to the lack of adequate 401(k) assets is participants making imprudent or “marketing timing” investment changes. Put an allocation in place and live with it through up and down markets. One should consider scaling back a little on equities as retirement age draws near. Seek help if you need assistance with your allocation.
Avoid investment funds with high fees.
Regardless of what contribution your employer makes to your 401(k) plan, try to save at the level to receive the full employer matching contribution. If possible, save a higher percentage. This helps promote a disciplined approach to saving.
Check out online calculators to assist with savings projections.
Consider working longer than you anticipated. Many Americans are planning to do so — even if it is part time.
Try to develop other sources of income, such as having a non-401(k) savings account with dividend paying stocks or income producing bonds.
So, while the long term health of Social Security needs to be addressed, we can all take more responsibility for our financial health in retirement. Every dollar saved now is one dollar more in retirement. Remember, without adjustments to our Social Security system, it will only be able to pay 72 period of scheduled annual benefits starting in 2035. This alone is incentive.
Finally, I always advise 401(k) participants to be keenly aware of three numbers: your savings rate, your investment allocation and your most recent account balance. Staying on top of these will help you stay focused on a healthier retirement.
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Marijoyce Ryan, CPP, is vice president of Fiduciary Services for Karpus Investment Management, a local independent, registered investment advisor managing assets for individuals, corporations, nonprofits and trustees. Offices are located at 183 Sully’s Trail, Pittsford, N.Y. 14534 (585) 586-4680.
