The numbers are pretty self-evident: younger workers simply cannot rely on anything but their own savings for retirement. Knowing that, the fact that only 51 percent of Americans are contributing to retirement accounts is concerning many financial advisers.
The state of retirement savings
Fidelity Investments, which handles nearly 2 million 401(k) accounts, reported that only about 51 percent of American adults are contributing to retirement savings accounts. Workers older than 55 have an average of around $130,000 to $230,000 in their retirement savings. For workers younger than 44, average retirement savings are lower, at just less than $75,000. Workers between the ages of 18 and 34 are not saving in huge numbers, with only 44 percent of workers in this group reporting retirement savings.
The problem with 401(k)
401(k) accounts are tax-advantaged retirement savings accounts that are based on the stock market. The stock investments in 401(k) accounts are investments that are subject to the stock market. There are options for 401(k) accounts that have much less or much more risk than others, but even the most conservative accounts still are subject to some forces of the stock market. 401(k) accounts are structured in such a way that there is a tax penalty for withdrawing before retirement, which encourages people to keep money in the stock market. This means that many individuals who are close to retirement lost significant portions of their retirement income when the stock market crashed.
Planning a working retirement
Many of the employees surveyed indicated that while they may be saving something for retirement, they also intend on a working retirement; they will be continuing to pull a paycheck from some employer for a significant portion of their “retirement.” Financial advisers estimate that most people will live between 20 and 30 years after they initially retire. For most people, this means there is a need for a retirement account of, minimum, half a million dollars.
Making use of the market
For younger workers, buying into retirement accounts now will likely be a very good idea. With compound interest, stock splits and other market growth, retirement accounts will build more value for a smaller investment now than they would in a very strong market. For older workers closer to retirement, ensuring that your retirement accounts are following a minimally risky plan will be a very good idea. As always, meeting with a competent and trustworthy investment adviser will always be a good move.