Many Americans are having a crisis of confidence when it
comes to whether their savings will meet their retirement goals.
To that point, 52% of working Americans feel they are behind
on their retirement savings, according to a new survey from Bankrate.com.
They may be on to something. There’s a $4 trillion
difference between the retirement savings workers will need and what they have
actually accumulated, T. Rowe Price estimates.
Perhaps surprisingly, workers’ insecurity around retirement
savings has not changed much since 2019, before the Covid-19 pandemic hit,
according to Greg McBride, chief financial analyst at Bankrate.
Admittedly, there are many obstacles that can stand in their
way if they want to save more. These can range from lack of access to a
retirement savings plan at work to fulfilling other financial goals, like
saving for big-ticket items such as a family home or a child’s college college
education, or paying down debts like mortgages, credit cards or student loans.
Even so, experts say there are steps you can take now that
will help boost your retirement savings long-term.
Kick up your savings rate
It can be tough to know how much is enough when it comes to
your retirement savings rate.
“We tend to advocate for a 15% deferral rate, and that
includes both the employee and the employer contribution,” said Lorie Latham,
senior defined contribution strategist at T. Rowe Price, during the firm’s 2022
retirement outlook panel this week.
That may come as a surprise to some workers, considering
that automatic enrollment rates can be as low as 3% or less, if those plans
also have automatic annual increases, according to Vanguard.
Experts generally recommend contributing enough to at least
get an employer match, if one is available. Keep in mind, too, that you will
need to save even more if you’re also investing on behalf of your spouse.
Of course, obstacles can get in the way.
Bankrate’s survey found 39% of workers are saving as much
toward retirement as they were before the pandemic, about 24% are saving more
and 14% are saving less. The remaining 23% are not contributing.
Those who are socking away less money cited reasons such as
loss of income, with 49%; extra expenses, 32%; additional debt, 21%; the desire
to have more cash available, 19%; or helping family members financially, 14%.
However, increasing your retirement savings deferral rates,
even if just a little as you earn raises or promotions, can have a big impact
on your total savings over time, according to McBride.
“The habit of increasing the amount that you’re putting away
can go a long way,” McBride said.
Invest in an IRA if your employer doesn’t offer a plan
One of the key reasons many workers don’t save more is
because they do not have access to a retirement savings plan at work.
Just 64% of private industry workers have access to a
defined contribution plan like a 401(k) plan, according to T. Rowe Price.
So long as you or your spouse have earned income, you can
open up an individual retirement account on your own and save that way, McBride
For younger workers, the opportunity to save in a Roth IRA
with money they’ve already paid taxes on could enable them to earn decades of
compounded growth, he said.
There are limits to how much you can put away each year
through either 401(k) or IRA plans.
In 2022, workers can save an extra $1,000 in their 401(k)
plans for a total of up to $20,500. The limit for traditional and Roth IRAs
will stay the same at $6,000.
If you’re age 50 or over, you can put away even more through
catch-up contributions — an extra $6,500 for 401(k) accounts and another $1,000
Consider working a year or two longer
If you’re near retirement age, another strategy to consider
is working longer.
Even a year or two of extra income can help bolster your
financial retirement security, McBride said.
The reason: It’s more time you have to save and let your
assets grow and less time that your money has to support you in retirement.
Delay claiming Social Security benefits
Working longer can also help you delay claiming Social
Security, which can significantly boost your eventual monthly retirement
Eligible workers can first claim retirement benefits at 62,
but will have reduced benefits for life.
By waiting until full retirement age — generally 66 or 67 —
they will receive 100% of the benefits they earned. And for every year they
wait until age 70, their benefits go up even more.
The difference between claiming at age 62 and 70 can be as
much as 77%.
“You basically get a permanent pay raise every year you’re
able to delay taking Social Security from age 62 to age 70,” McBride said.
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