Are You Saving for Retirement? The “Right” Way?

The Washington Post ran a recent story about saving for retirement. Two-thirds of Americans aren’t using this easy way to save for retirement stress the importance of workers taking advantage of various workplace retirement accounts yet many fail to do so.

Fewer than one-third of Americans are saving money in their 401(k)s and other workplace retirement accounts, according to an analysis of tax records by Census Bureau researchers.

Although nearly 80 percent of Americans work for an employer that offers retirement programs — whether a 401(k), 403(b) or something else — only 32 percent of workers sign up for such accounts, according to a working draft of the study by Michael Gideon and Joshua Mitchell. The researchers studied W-2 tax forms from 2012 from 155 million American workers for their findings, which help shed light on just how ill-prepared many Americans are for the future.

The article discusses the importance of saving for retirement for the various age groups and notes that it’s unlikely that those close to retirement have a realistic idea of what it costs to live during retirement.

Older workers …  are increasingly experiencing sticker shock when they realize just how much money they’ll need for retirement, said Manisha Thakor, a financial adviser in Portland, Ore. The most conservative calculations estimate Americans will need to have about eight to 10 times their annual salary saved for retirement, she said.

“By the time people see how much they need, it seems so horrific and out of bounds that they just freeze and do nothing,” she said, adding that she counsels clients to save at least 20 percent of their income toward retirement and other expenses. “They just throw their hands up and say, ‘What’s the point of even trying at this point? I’m so far off.’ ”

At the same time, people are living longer, which means they’ll have to save up that much more to help support themselves in their post-work years. She added, “Layered on top of both generations is the specter of student loan debt, which has now eclipsed credit card debt.”

The student debt referenced in the article is that taken on for their kids or grandkids.

What is the way to get more workers to take advantage of the offered workplace retirement plans? One idea in the article is automatic enrollment. Even though that may be successful, don’t forget, “[i]n recent weeks …  Congress has moved to repeal Obama administration measures that allow states to automatically enroll workers ii retirement programs.”