[Editor’s Note: Because of the holiday, some readers might have missed this article that was published in our Afternoon Edition last week. As it generated a heavy response from readers and many thoughtful and insightful responses, we are rerunning it today as a morning Investing Insights column, along with a link to the original article so that you can join into the conversation.]
The IRS recently announced cost-of-living adjustments affecting pension plans and other retirement-related items for tax year 2015. For example:
- The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $17,500 to $18,000.
- The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $5,500 to $6,000.
But will those increases mean anything to many Americans? We think not. Here’s why …
A Wells Fargo survey of middle-class Americans has uncovered that the majority have only saved about $20,000 for retirement, which is down from $25,000 in 2013. The estimated need is more like $250,000.
Thirty-four percent of working middle-class adults in the U.S. are not even contributing a dime to a 401(k) plan, an IRA, or any other type of retirement savings plan, according to this recent survey which followed more than 1,000 adults between the ages of 25 and 75 with a median household income of $63,000.
Those who are putting money away for retirement say that they are currently reserving $125 every month. Fortunately most of those surveyed — about 61 percent — say that the savings is not much of a sacrifice. Thirty-eight percent say that this long-term investment is a big sacrifice.
About 55 percent, however, say that they plan to save later since they got a late start on retirement savings.
|More than half of non-retirees without access to a 401(k) plan say “it is not possible” to pay bills and “still” save for retirement.|
Wells Fargo’s director of institutional retirement, Joe Ready, says, “The main message here is people are putting off saving, and they are losing the benefit of long-term compounded earnings. Kicking the empty can down the road is going to be detrimental to their retirement security. It’s really a problem.”
The worst of it, of course, is that it is not very easy to make the kinds of changes necessary to begin putting money away for savings. However, even just a few dollars a month — in a fair-yielding retirement account — will eventually pay off the kinds of dividends necessary in retirement.
The survey also shed light on several other things: More than 30 percent of the middle class believe they will not have enough money to survive retirement. About 70 percent actually have some kind of savings plan through an employer.
On average, people with access to a 401(k) plan will save ten times more than someone who does not have one.
How have you prepared for retirement?
Are you contributing to a 401(k) or IRA? Or are you among those who are counting on Social Security for the majority of your retirement income?
And if you are retired, tell us how you put aside money during your working years. What sacrifices did you make so you could retire comfortably? Please share your experiences — positive and negative — with your fellow readers in the Money and Markets comment section.