A Savings Account

My decision as to whether or not to save in my workplace savings plan wasn’t long or complicated. 

Yes, I had to actually fill out a form, and yes, I actually had to figure out how to invest those savings (though in fairness, there were only four funds from which to choose, one of which was company stock). Yes, there was also a generous match, but when you’re young there are more enticing ways to spend your income than—well, not spending it. That said—and at age 22 I’d not always fully embraced my parents’ counsel—my mother didn’t hesitate to insist that I did so.  

My mother, now a retired school teacher, then (and still) reminds me with some regularity (and deserved pride) that she began having $50 taken out of her paycheck at work—though my father protested at the time they couldn’t afford to do so. Or at least he did until he saw that first quarterly statement—at which point he began looking into how he could start saving in his workplace savings plan. They started relatively late in their working lives—and yet she continues to draw from that 403(b) account (and my dad’s, which has outlived him) to this day.

Those memories have a special resonance for me this week—which happens to be America Saves Week—and while if you’re reading this, you likely save every day, many Americans don’t. While the overall theme/focus this year (it’s been a “thing” since 2007) is on “building financial resilience,” each day of this special week has a different focus: yesterday (Monday) was Save Automatically, today is Save for the Unexpected (and boy, hasn’t COVID reminded us anew and afresh of that need?), Wednesday—a particular favorite of mine—Save to Retire, while Save by Reducing Debt is on tap for Thursday and the week wraps up with a focus on Save as a Family.

Now, arguably every week could (or at least should) be America Saves Week—but this week’s special focus provides us all with an opportunity to share not only success stories, but practical insights on how to do what we’re told (often by ourselves) what can’t be done. 

You don’t have to have a workplace retirement savings plan in order to save, of course—but it helps. We regularly cite data that proves that even modest income workers—those earning between $30,000 and $50,000/year—are 12-15 times more likely to save via their workplace savings plan than left to do it on their own. It’s a combination of making it not only automatic, but easy! Particularly these days with automatic enrollment, diverse default investments like target-date funds and managed accounts, and the option of automatically increasing that rate of savings on a regular basis—easy, automatic and efficient. 

I’ve never been very comfortable lecturing others on the importance of saving—we all have unique circumstances and challenges to overcome, after all—and saving is, ultimately, a matter of personal responsibility and choice. But I need look no further than the example of my parents to see the impact that a savings discipline and, let’s face it, sacrifice, can make.

See, my dad thought they couldn’t afford to save, but the reality is—they couldn’t afford not to. 

- Nevin E. Adams, JD

A Hallmark Holiday?

I don’t know about you, but I’ve always had a certain ambivalence about what are generally termed “Hallmark holidays.”

You know the ones I’m talking about – the ones that seem crafted for the sole purpose of generating sales for greeting card sellers. Of course, after a while you no longer question their existence – and if one still struggles to remember exactly when “Grandparent’s Day” is, well, we’ve pretty much got Mother’s Day, Father’s Day, and Valentine’s Day down to a science (one that might not be on your calendar is National Slap Your Irritating Co-Worker Day, October 23). Indeed, these days there are months on the calendar devoted to a whole series of acknowledgements and remembrances.

There are also a number of occasions set aside to recognize the importance of saving (America Saves Week –February ), the importance of planning for retirement (National Retirement Planning Month – July, and National Retirement Planning Week – April), and the issue of retirement security generally (National Retirement Security Week – October). There’s even a National Financial Literacy Month (April) and National Financial Planning Month (October).

While I’ve had some involvement with most of those during my career (mainly to remind folks about their occurrence) and, sadly, for many those events are often dismissed as “Hallmark holidays” – even for those of us who have made a career-long commitment to helping improve the nation’s retirement prospects.

That said, one that has stuck with me – even prior to our affiliation with the Plan Sponsor Council of America – is 401(k) Day. This year it falls on Friday, September 6 – a date chosen in acknowledgement of the fact that, as retirement follows labor, this focus on retirement follows Labor Day (fans of history or trivia may appreciate that then-President Gerald Ford signed the Employee Retirement Income Security Act (ERISA) into law on the day after Labor Day, 1974).

Of course, these days the focus has broadened, and incorporates a focus on financial wellness ahead of retirement, as well as preparations for that time yet to come. Like retirement itself, the preparations are best attended to on an on-going basis, rather than a single date on the calendar.

Readers of this publication are all too aware of the challenges that confront our nation’s retirement savings system – widespread financial illiteracy, a persistent coverage gap, and looming shortfalls in the underpinnings of Social Security. That “familiarity” with these complex issues perhaps makes it too easy to dismiss the opportunity that an occasion like 401(k) Day represents.

Sure, we’re talking about these issues every day – but as a friend reminded me long ago, even a Hallmark holiday can provide an opportunity to pay attention to the people – and things – we often take for granted.

So, this year, let’s (all) take advantage of the “occasion” – all year long. You can find out how at https://www.psca.org/401kDay

- Nevin E. Adams, JD

The Importance of Having a Plan

Over the course of my career, I’ve had the opportunity to participate in any number of “projects,” and to manage more than a few.

Some were explicitly tagged as such at the start, while others simply expanded to fit that name. Most of those projects turned out well; others faded into the woodwork after a time; some drew to a close after “redefining success;” and a couple actually “crashed and burned.” A lot of variables determine whether a project will be a success or failure, but in my experience, projects that lack either a limited budget and/or a specific timeframe are doomed from the outset.

I was therefore interested in some of the findings from the 8th annual America Saves Week survey this week. The survey, sponsored by the Consumer Federation of America, the Employee Benefit Research Institute (EBRI) and the American Savings Education Council (ASEC), found that more than half (57%) of those with a savings plan with specific goals said they were making good or excellent progress meeting their savings needs — nearly three times the number without a plan.

Moreover, nine-in-ten of those with a plan were spending less than their income and saving the difference (compared with only half of those without a plan), and more than twice as many (65%) of those with a plan said they were saving enough for retirement as among those without that specific savings plan (31%).

While those gaps were found between those who had a specific, individual, savings plan with specific
goals, it’s long been established that having access to a retirement plan at work makes a big difference in terms of whether people save for retirement or not — and the impact transcends income, gender and age. In fact, data prepared by the nonpartisan EBRI shows that more than 70% of workers earning from $30,000 to $50,000 participated in employer-sponsored retirement plans when a plan was available, whereas less than 5% of those middle income earners without access to an employer-sponsored plan contributed to an IRA. In other words, middle class workers are 15 times more like to save for their families’ retirement at work than on their own.

During this America Saves Week, it’s important to reinforce the importance of saving. However, it may be even more important to remember the positive impact of having a specific plan.

Not to mention the positive impact of having access to a retirement plan at work.

- Nevin E. Adams, JD

See also: “4 Things You Need to Know if You are Not Saving for Retirement.” 

For an idea as to the impact that eligibility for participation in a workplace retirement plan can make, see “Retirement Savings Shortfalls: Evidence from EBRI’s Retirement Security Projection Model.” 

"Off" Putting

I’ve never been very keen on going to the dentist.  As important as I believe dental hygiene to be, I’ve come to associate my visits with the dentist with bad things: some level of discomfort, perhaps even pain, a flossing lecture from the hygienist, at the very least.  Most of which is readily avoided by doing the things I know I should be doing regularly – brushing, flossing, a better diet.  And knowing that I haven’t done what I should have been doing, I have good reason to believe that my visit to the dentist will be a negative experience – and so I put it off.

However, it’s not as though the postponement makes the situation any better; if anything, the delay makes the eventual “confrontation” with reality worse. 

That’s what retirement planning is like for many: They know they should be saving, know that they should be saving more, but they hesitate to go through the process of a retirement needs calculation because they are leery of the “pain” of going through the exercise itself, or perhaps even afraid that their checkup will confirm their lack of attentiveness to their fiscal health.  And, like the postponed dental visit, putting it off not only does nothing to rectify the situation, the passage of time (without action) may even allow the situation to worsen.

Indeed, the Retirement Confidence Survey (RCS)[i] has previously found that workers who have done a retirement needs calculation tend to be considerably more confident about their ability to save the amount needed for a financially comfortable retirement than those who have not done so, despite the fact that those doing a calculation tend to cite higher retirement savings goals.  In the 2013 RCS, 31 percent who have done a calculation, compared with 14 percent who have not, say they are very confident that they will be able to accumulate the amount they need, while 12 percent who have not done a calculation, compared with 3 percent who have, report they are not at all confident in their ability to save the amount needed for a financially comfortable retirement.

Next week we’ll commemorate America Saves Week[ii], an annual opportunity for organizations to promote good savings behavior[iii] and a chance for individuals to assess their own saving status.  Not because saving is something you should do once a year, or that reconsidering your financial goals and progress is well-suited to a particular week on the calendar, but because it IS something that should be done regularly in order to be effective.

Over time, I have found that when I make (and keep) regular dentist appointments, those visits are much less painful, and considerably less stressful than the times when I have gone “too long” between appointments.

Similarly, regular savings checkups – like those inspired by events like America Saves Week – can be a lot less “painful” than you might think.

Nevin E. Adams, JD

You can assess your savings plan here.

For a list of six reasons why you—or those you care about—should save, and specifically save for retirement now, see “Sooner or Later“:

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[i] Information from the 2013 Retirement Confidence Survey (RCS) is available online here. Organizations interested in underwriting the 2014 RCS can contact Nevin Adams at nadams@ebri.org.  

[ii] America Saves Week is an annual event where hundreds of national and local organizations promote good savings behavior and individuals are encouraged to assess their own saving status. Coordinated by America Saves and the American Savings Education Council, America Saves Week is February 24–March 1, 2014, a nationwide effort to help people save more successfully and take financial action. More information is available at www.americasavesweek.org.

[iii] Organizations interested in building/reinforcing a workplace savings campaign can find free resources at www.asec.org  including videos, savings tips, and the Ballpark E$stimate® retirement savings calculator, courtesy of the American Savings Education Council (ASEC).

Sooner or Later?

On October 16, more than a hundred professionals gathered at the Fall 2013 ASEC Partners’ Meeting to discuss the obstacles to, and possible solutions for, retirement savings.  National Save for Retirement Week is upon us, and America Saves Week will be here before we know it. 

So too, retirement – which seems far away to many, and IS far away for some – often seems to be a far off goal, something that can wait for another day, a more “convenient” time, when we have more free time, and perhaps fewer financial demands.

Indeed, it’s easy, in the normal press of life, to put off thinking about retirement, much less thinking about saving for a period of life many can hardly imagine. We all know we should do it—but some figure that it will take more time and energy than they can afford just now, some assume the process will provide a depressing, perhaps even insurmountable target, and others  - well many don’t even know how to get started.

Here are six reasons why you—or those you care about—should save – and specifically save for retirement – now:

Because you don’t want to work forever.

No matter how much you love your job – or love your job today – that might not always be the case, and you might want the flexibility to make a change on your terms; if not to retire, to cut back on your hours, or maybe even to pursue other interests.  The sooner you’ve made those financial preparations, the sooner that decision can be your choice, rather than one forced upon you.

Because living in retirement isn’t free – and it might cost more than you think.

Many people assume that expenses will go down in retirement, and for some they may.  On the other hand, retirement often brings with it changes in how we spend, and on what – and that’s not necessarily less.  For example, research by the Employee Benefit Research Institute (EBRI) has found that health-related expenses are the second-largest component in the budget of older Americans, and a component that steadily increases with age.  Note also that long-term care (LTC) insurance is a growing area of concern for retirees and, according to government estimates, 12 million older Americans will need LTC by 2020. However, in most cases LTC is not covered by Medicare, and this care is expensive and can be indefinitely long or even permanent.

Because you may not be able to work as long as you think.

The Retirement Confidence Survey (RCS) has, over its 23 year history, consistently found that a large percentage of retirees leave the work force earlier than planned—47 percent in the 2013 RCS, in fact—and many retirees who retired earlier than planned cite negative reasons for doing so, including health problems or disabilities (55 percent); changes at their companies, such as downsizing or closure (20 percent); having to care for spouses or other family members (23 percent).

Some retirees do mention positive reasons for retiring early, such as being able to afford an earlier retirement (32 percent) or wanting to do something else (19 percent), but just 7 percent offer only positive reasons.

Because working longer may not be enough.

One of the more recent alternatives proposed is that of continuing to work longer which, if possible, would serve to both postpone the depletion of retirement income resources, and to provide additional time to save.  As noted above, this assumption might not prove to be a viable option for all, and even for those who can and do, EBRI research has found that even working until 70 by itself may not be sufficient for some individuals.

Because you don’t know how long you will live.

People are living longer and the longer your life, the longer your retirement could last, particularly if, as noted above, it begins sooner than you planned. Retiring at age 65 today? How big a chance do you want to take of outliving your money in old age?

Because the sooner you start, the easier it will be.

What are you waiting for? Sooner or later, you know you need to.  And the later you start, the harder it can be.

- Nevin E. Adams, JD

A good place to start – any time –  is the BallparkE$timate,® and with the other materials available at www.choosetosave.org, as well as www.americasavesweek.org.

For more information on retirement saving and spending, see also:
Income Composition, Income Trends, and Income Shortfalls of Older Households

How Does Household Income Change in the Ten Years Around Age 65?

Spending Adjustments Made By Older Americans to Save Money

Expenditure Patterns of Older Americans, 2001-2009

The First Step

For me, the hardest part of writing has always been that first sentence.

I don’t usually struggle with the topic, the angle to take, the length, the clever title, nor even the research and analysis that might be required to support the point(s) being made. All of those take time, energy, and effort, of course—but nothing like the effort I put into crafting those first few words. What makes that all the more ironic, particularly in view of the energy expended, is that the first sentence I wind up using often isn’t the one with which I began. It’s just the one that keeps me from getting started.

Aside from strained finances, “getting started” is perhaps one of the most commonly cited problems in saving. Most know the importance of saving, and appreciate the risk(s) of not having an emergency fund, or lacking adequate retirement savings. We have goals—both short- and long-term—that can be quantified, the ability to take advantage of payroll deductions, and/or regular account transfers from checking to savings, that can make savings easier. And yet, certainly outside of the structures of workplace-based retirement plans, many don’t save as they know they should.

According to the 2012 Retirement Confidence Survey (RCS),¹ workers who contribute to a retirement savings plan at work (45 percent) are considerably more likely than those who are not offered a plan (22 percent) to have saved at least $50,000, and were much less likely to report having saved less than $10,000 (24 percent vs. 63 percent who are not offered a plan).

There are a lot of “reasons” to put off savings. For some it’s the inconvenience of having to fill out a form, stop by the bank, or logging on to a website. Not knowing how much to save stymies some, while others are “stopped” by the size of a savings goal that may seem insurmountable. Still others are thwarted by what are, or appear to be, more pressing financial concerns.

In just a couple of weeks America Saves Week² will draw heightened attention to the benefits of saving—the importance of setting a goal, making a plan, and taking advantage of ways to save automatically—not just for one week, but for the rest of the year as well.

Like that first sentence, when it comes to saving, sometimes all you need is to get started. That starts with a decision to Choose to Save®³—and there’s no better time to start on that path to Save For Your Future® than today.

Nevin E. Adams, JD

Organizations interested in building/reinforcing a workplace savings campaign can find free resources at www.asec.org including videos, savings tips, and the Ballpark E$stimate® retirement savings calculator, courtesy of the American Savings Education Council (ASEC).

¹ Information from the 2012 Retirement Confidence Survey (RCS) is available online here. Organizations interested in underwriting the RCS can contact Nevin Adams at nadams@ebri.org

² America Saves Week is an annual event where hundreds of national and local organizations promote good savings behavior and individuals are encouraged to assess their own saving status. Coordinated by America Saves and the American Savings Education Council, America Saves Week is an annual opportunity for organizations to promote good savings behavior and a chance for individuals to assess their own saving status. ASEC is a program of the Employee Benefit Research Institute (EBRI). Over 750 organizations have signed up to participate in the 7th annual America Saves Week, taking place February 25–March 2, 2013, in a nationwide effort to help people save more successfully and take financial action. More information is available at www.americasavesweek.org

³ Choose to Save® is sponsored by the nonprofit, nonpartisan Employee Benefit Research Institute Education and Research Fund (EBRI-ERF) and one of its programs, the American Savings Education Council (ASEC). The website and materials development have been underwritten through generous grants and additional support from EBRI members and ASEC Partner institutions.

Goals Tending

The bad news is that times are still tough for many Americans—and surveys suggest that even those with jobs are nervous about their prospects for the future. The good news is that the current level of economic uncertainty seems to have brought about—at least for some—a heightened awareness of the need to set money aside for a rainy day, perhaps even those rainy days in retirement.

That said, the weak economy has certainly constrained the ability of many to save. In fact, a recent national survey found that an increasing number of Americans are having difficulty saving to meet goals ranging from meeting emergencies to affording retirement. The survey—released as part of America Saves Week(1)—noted that over the past three years, there has been a decline in the number of people who spend less than their income and save the difference, are building home equity, have adequate emergency savings, and think they are saving enough for retirement.

However, the survey also revealed that having a savings plan has beneficial financial effects, even for lower-income families. Consider that 85% of those who had a savings plan spent less than their income, (86% of this group felt they had sufficient emergency savings), and 3 in 4 said they were saving enough for retirement.

On the other hand, just 44% of those without a savings plan claimed to be spending less than their income, while 43% said they had sufficient emergency savings. Fewer than 1 in 4 of those with no savings plan said they were saving enough for retirement.

And yet, while those with a plan for savings had significantly better savings behaviors, fewer than half of survey respondents said they had “a savings plan with specific goals.”

It is admittedly simplistic to chasten those truly unable to save because of challenging economic circumstances. On the other hand, there are surely some today better able to weather those economic storms because they chose to set money aside during less tumultuous times.

That first step on that path, and it’s a critical one, is to Choose to Save.® As America Saves Week reminds us—and those trying to help others save—there’s no better time to start on that path to Save For Your Future® than today.

- Nevin E. Adams, JD

Note: Organizations interested in building/reinforcing a workplace savings campaign can find free resources—and a handy schedule of events around which to construct a program—here courtesy of the American Savings Education Council (ASEC).



Endnotes

(1) America Saves Week is an annual event where hundreds of national and local organizations promote good savings behavior and individuals are encouraged to assess their own saving status. America Saves Week is managed by the Consumer Federation of America (CFA), and the American Savings Education Council (ASEC). ASEC is a program of the Employee Benefit Research Institute (EBRI), which commissioned the survey, undertaken by Opinion Research Corp. You can find out more about America Saves Week here.

(2) Choose to Save® is sponsored by the nonprofit, nonpartisan Employee Benefit Research Institute Education and Research Fund (EBRI-ERF) and one of its programs, the American Savings Education Council (ASEC). The website and materials development have been underwritten through generous grants and additional support from EBRI members and ASEC Partner institutions.