6 Things People Who Need to Save for Retirement Need to Know About Saving for Retirement

When it comes to retirement, Americans seem to be a pretty insecure bunch. But then maybe it’s because they don’t know all the things they need to know.

This, of course, is National Retirement Security Week, a week devoted to making employees more aware of how critical it is to save now for their financial future, promoting the benefits of getting started saving for retirement today, and encouraging employees to take full advantage of their employer-sponsored plans by increasing their contributions.

In the spirit of the week, here are six things that people who need to save for retirement (and who doesn’t?) need to know about saving for retirement.

You should save to at least the level of the employer match.

Many employers choose to encourage your decision to save for retirement by providing the financial incentive of an employer matching contribution. That match is often referred to as “free money” because you get it just for saving for retirement. That match is not actually “free” of course – but it is free for you. If it’s 25 cents for every dollar you save, it’s like getting a 25% return on your investment.

You should save to at least the level of the employer match – especially if your plan’s default savings rate is lower.

While most education materials provided with your 401(k) emphasize the benefit of the employer match (generally referencing that you don’t want to leave “free money” on the table), a growing number try to make it easier for you by automatically enrolling you in the plan. That’s the good news.

The bad news? That default savings rate (generally 3%) will almost certainly be less than you need to save to get the full employer match (see above). And it will almost certainly be less than you need to achieve your retirement goals/needs (also see above).

So, if you do take advantage of the convenience of the default, make sure that you remember to make the change to the savings rate at the first opportunity.

You can save more than the match.

A lot of people save only as much as they need to receive the full employer match. That’s certainly a good starting point, but it may not be the right amount for you. There are a number of factors that go into determining the amount and level of the match; how much you need to set aside for your own personal retirement goals is almost certainly not one of those factors. That said, you certainly don’t want to leave any of that match on the table by not contributing to at least that level. But if that’s where you stop saving, you’re probably going to come up short.

Uncle Sam will help.

Beyond the tax advantages to saving for retirement on a pre-tax basis – the ability to watch those savings grow without paying taxes until they are actually withdrawn – there is another savings incentive with which many are not as familiar. It’s the Saver’s Credit, and it’s available to low- to moderate-income workers who are saving for retirement. For those who qualify, in addition to the customary benefits of workplace retirement savings, it could mean a $1,000 break on your taxes – twice that if you are married and file a joint return!

That said, just 24% of American workers with annual household incomes of less than $50,000 are aware of the credit, according to the 15th Annual Transamerica Retirement Survey. However, that’s twice as many as found by the 11th Annual Transamerica Retirement Survey. You can find out more about the Saver’s Credit here.

Older workers can save more.

Thanks to a provision in the tax code, individuals who are age 50 or older at the end of the calendar year can make what are called annual “catch-up” contributions. In 2016, up to $6,000 in catch-up contributions may be allowed by 401(k)s, 403(b)s, governmental 457s, and SARSEPs (you can do this with IRAs as well, but the limits are much smaller).

The bottom line: If you haven’t saved enough, these catch-up provisions can help. You can find out more here.

Even if you’re capped in your 401(k), you can still save more.

There’s little question that saving for retirement at work is the way to go – there are tax advantages, the support of the employer matching contributions, and access to investment choices that are screened and reviewed on a regular basis by the plan fiduciaries. However, there are certain legally imposed annual limits on how much you can save in your 401(k). If you hit those limits (and most don’t), there’s nothing that says you have to limit yourself to saving there.

But you’d be foolish not to take full advantage of your workplace savings opportunity first.

- Nevin E. Adams, JD

A Hallmark Holiday?

I’ve always had a certain ambivalence about what are cynically referred to as “Hallmark holidays.” You know the ones I’m talking about – the ones that seem (and in many cases, are) crafted for the sole purpose of generating sales for greeting card sellers.

Next week some – and I hope many – will commemorate National Retirement Security Week (which used to be called National Save for Retirement Week). Sponsored by the National Association of Government Defined Contribution Administrators (NAGDCA), it runs from October 16-22. It’s a national effort to raise public awareness about the importance of saving for retirement – and it’s even managed to obtain a Senate resolution in support of its observance.

That said – and despite the hard work, talented designs, and sponsorship of a number of large and reputable financial services organizations, I suspect many of you haven’t even heard of it. More’s the pity.

The week is focused on three key objectives:

• Making employees more aware of how critical it is to save now for their financial future
• Promoting the benefits of getting started saving for retirement today
• Encouraging employees to take full advantage of their employer-sponsored plans by increasing their contributions

We’re all too aware of the challenges that confront our nation’s retirement savings system. I’d go so far as to wager that just about everybody taking the time to read this post thinks about those items every working day, and doubtless spends a good part of their week trying to advance those causes – so, what’s the point of a single week devoted to that emphasis?

The point, of course, is not for us – but for those who don’t have these issues on their mind every day. Because, even if we should be thinking about this every day of the year, special “events” like National Retirement Security Week give those of us who do a chance to, as a collective group of professionals, remind those who don’t of the importance of thoughtful preparations for retirement. Better still, with the plan design improvements available today, you might only need one week – or one hour – of getting an individual – or group of individuals – to think about those messages.

Consider, for example, if that period of focus got an individual (or group of individuals) to enroll in their workplace retirement plan, or led an employer to embrace automatic enrollment, or, for those who already auto-enroll, to increase the default contribution rate. What if that focus prompted those who are already participating to increase their deferral rate, or to boost that rate so that they got the full benefit of the employer match? And what if that period of focus – or the actions above – led workers to stop and figure out how much they might need to save to sustain their retirement?

Sure, a cynic might see National Retirement Security Week as nothing more than a Hallmark “holiday.” But I see it as an opportunity – an opportunity to pay attention to the people – and things – we often take for granted.

Let’s take advantage of the “occasion.”

- Nevin E. Adams, D

Just "Because"

As you may have heard (but may not), we recently celebrated National Save for Retirement Week. Of course, there’s no “magic” to a week dedicated to a focus on saving for retirement — even one that Congress has seen fit to acknowledge with a resolution.

That said, saving for retirement — which seems far away for some (though likely not as far away as some think) — is something that many find easy to defer for another day, a more convenient time, a more settled financial situation. We all know we should do it — but some figure that it will take more time and energy than we can afford just now, some assume the process will provide a depressing, perhaps even insurmountable target, while others don’t even know how to get started.

You deal with these objections all the time. However, in recognition of National Save for Retirement Week, here are five simple reasons why you, or those you care about, should save — and specifically save for retirement — now:

Because you don’t want to work forever.

If you want to stop working one day, you are going to have to think about how much income you will need to live after you are no longer working for a paycheck.

Because living in retirement isn’t free.

Many people assume that expenses will go down in retirement, and they may for some. 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 (see “How Does Household Expenditure Change With Age for Older Americans?”).

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

In 1991, just 11% of workers expected to retire after age 65, according to the Retirement Confidence Survey. Twenty-three years later (2014), that same survey found that a third of workers report that they expect to retire after age 65, and 10% don’t plan to retire at all.

Expectations are one thing, but realities seem to be different. The RCS has consistently found that a large percentage of retirees leave the workforce earlier than planned (49% in 2014), and many who retire earlier than they had planned often do so for negative reasons, such as a health problem or disability (61%) — things that are not within their control.

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

People are living longer and the longer your life, the longer your potential retirement, particularly if it begins sooner than you think. Retiring at age 65 today? A man would have a 50% chance of still being alive at age 81 (and a woman at age 85); a 25% chance of living to nearly 90; a 10% chance of getting close to 100. How big a chance do you want to take of outliving your money?

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


- Nevin E. Adams, JD