How important is saving for retirement? Among other reasons, it is important enough for the National Association of Government Defined Contribution Administrators (NAGDCA) and the U.S. Senate to recognize October 2020 as National Retirement Security Month.
It wasn’t always a month. In 2006, Senators Gordon Smith (R-OR) and Kent Conrad (D-ND) established National Save for Retirement Week with eyes toward elevating awareness about retirement savings.
Designed as a national effort to encourage employees to save and participate in their employer-sponsored retirement plans, the U.S. Senate unanimously changed the resolution this October from “week” to month.
What’s New and What’s Not?
The days of relying on pensions are over. And as a result, The Employee Benefit Research Institute found the amount that workers have saved for retirement is now considerably less than the amount those workers need to adequately fund their retirement years.
Some experts contend that employees are stretched too thin from paycheck to paycheck to put anything away. Others contend that because employers and workers are not required to contribute to a retirement savings plan, they choose not to.
According to Matt Petersen, NAGDCA Executive Director, “Social Security benefits replace roughly 40% of pre-retirement income among average earners. While this is a meaningful supplement to other income sources, it’s hardly enough to maintain a comfortable lifestyle on its own.”
However, if Social Security were expanded to provide more adequate retirement savings, payroll taxes would have to increase.
Nearly a quarter of public sector employees are ineligible for Social Security today and employer pensions are rare outside the public sector. Where available, they’re often less robust than they once were.
“Clearly, Americans need to be actively engaged in preparing for retirement, and they need all the help we can give them. This requires much more than a single week a year of focused attention,” Petersen said.
While the United States has the largest economy in the world, it ranks low when it comes to financial literacy. Unfortunately, personal finance or financial literacy courses are not required learning in America’s schools and colleges today. What is ironic is it can be the best time and easiest place to start the financial education process.
How much should you save for retirement? Well, at 20 or 25 years old, isn’t that an absolutely daunting question? How will you choose the appropriate investments for a 401(k) or an IRA after accepting that very first job? With questions like these, it is no wonder people in their 20s and 30s become overwhelmed by it all. But there is help.
Regardless of your age, Hefren-Tillotson can simplify it all for you. We start with a handy guide called, MASTERPLAN 101, available to you now for the asking as you begin your career and continue on your professional life and financial journey.
Did you know that if you were born between 1981 and 1999, for example, you are not only the first generation to grow up in a digital world, your group has more college graduates than earlier generations? Today, you earn roughly 63 percent more than high school graduates.
Regarding retirement savings, 70 percent of college-educated millennials are already saving, but said they “do not know how much they will need.” Less than half have saved enough to cover three months’ expenses, should they need to, and 70 percent were not sure if they could come up with $2,000 in case of an emergency. This is where financial literacy is helpful.
Saving and Investing
Statistics such as these found in the guide also reflect NAGDCA’s commitment to educating employers and employees about the ever-growing importance of saving for retirement
Naturally, with longer life expectancies, your 401(k), IRA and retirement savings will need to last longer. And with proper planning, careful investment choices and all-round good advice, you can have a professional partner in Hefren-Tillotson to help you get to where you want to go, when you want to get there, and throughout the many days until then.
If you do not have an employer-sponsored plan, we can help you start your own plan.
So, what’s the difference between saving and investing and why is it important to know? Saving money is putting money into a checking or savings account. The money is “parked” there; it sits safely but offers a low return. It is accessible fairly quickly. Other examples of savings vehicles are U.S. Treasury bills and money markets.
Investing money is putting money into stocks and bonds that you view as having the potential to grow at a reasonable rate of return over time, with investment choices you understand, and ones in which you are comfortable in taking a long-term view.
You will see the power of compounding at work over your years invested. Will your investment values go down occasionally? Yes, and they do. But time is on your side. It is a powerful partner in growing your assets. We can show you how. If you would like more information, contact us at Hefren-Tillotson today. We would be glad to help you.