It’s no secret that obtaining retirement security can be a daunting and downright scary task. But is retirement security really as difficult as we think? Some people don’t think so.
The National Institute of Retirement Security estimates that on average, households approaching retirement, ages 55 to 64, have only $100,000 in retirement savings and the National Retirement Risk Index indicates that 53 percent of households are at risk of not maintaining their living standards after retirement.
The good news is that retiring in comfort is not out of reach – as long as the right steps are taken. Empower Institute and Empower Retirement – the nation’s second-largest retirement services provider, conducted a study of more than 4,000 working Americans and found there are four key factors to ensuring a successful retirement.
1. Access to a workplace retirement savings plan.
If you work somewhere that offers a retirement savings plan, you are positioned for success. If you aren’t participating yet, start immediately. If your employer doesn’t offer a retirement plan, suggest that they start one. There are several retirement saving plan options available. Your employer may be able to set up a simplified plan that can help both you and your employer.
2. Defer 10 percent or more of income.
According to the Empowerment study, the ability to replace current income in retirement is driven much more powerfully by savings behavior than by income. In other words – start saving and start saving early. Your taxes will be lower, your company may kick in more and automatic deductions make it easy. Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate.
3. Sign up for an automatic deferral rate escalation within a defined contribution plan.
Automatically having your deferral rate escalate as you age is a key contributor to savings success, according to the Empowerment study. Some plans will allow the employee to set up increases in contributions to take place automatically at preset intervals. If the idea of automatic deferral rate increases makes you nervous, make a commitment to increase your contribution as soon as you get a raise. If planned properly, you can defer the raise into the 401k, keeping your check the same and adding to your retirement account.
4. Work with a financial advisor.
The importance of financial advice is striking. According to the results of the study, respondents with a financial advisor are currently on track to replace 82 percent of current income in retirement vs. 55 percent for those without an advisor.
Another key conclusion from the study is that Americans will need to figure healthcare costs more prominently in the savings equation. With the percentage of healthy households declining as people age (from 43 percent for ages 30-39 to 21 percent for ages 60-65), and more of the existing retirement savings needing to be earmarked for healthcare, a more expansive evaluation of retirement income needs would benefit millions of Americans
For more information about retirement security and to start building your nest egg, contact one of our bankers at your local MidWestOne Bank locations.