Why the Retirement Crisis Isn’t as Bad as You Think

Couple sits on dock

Are your retirement savings on track? | iStock.com

Americans are notoriously bad savers. Many of us don’t have enough money to cover a $500 emergency, and we’re putting off buying a house to avoid the down payment or drowning in credit card debt. And that’s just to cover the day-to-day costs, to say nothing of planning for the future.

Many Americans are also known to put off saving for retirement until their golden years — and then those years become much less shiny when we realize we haven’t saved enough to fund a decade or so of leisure. That’s why many people might end up working until they’re 80, or indefinitely.

However, the stereotypes about saving for retirement don’t always ring true. While we still have a long way to go, a recent survey from Bankrate shows that people are taking retirement seriously, and doing what they can to start a nest egg.

Retirement savings: Are we improving?

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Run-down home | iStock.com

It’s never nice to feel like an underachiever, especially when it comes to saving your money. However, it looks like some people are finally making headway when it comes to boosting their nest eggs. According to recent Bankrate findings, 21% of people are saving more for retirement compared to last year. Only 5% of people aren’t saving anything for their golden years — a record low since the survey began six years ago.

In 2011, following the wake of the financial crisis, the number of people saving less for retirement were nearly double that of people who were saving more compared to the year before (29% saving less compared to 15% saving more). This year, that dynamic is switched, with just 17% of people saving less for retirement.

Factors for increasing savings

retirement label on jar filled with coins

Savings | iStock.com

Bankrate’s chief financial analyst, Greg McBride, said the positive statistics are likely a result of an improving economy, in which people are earning more money and feeling more secure in their future career prospects. “We have seen that people have reprioritized saving ever since the financial crisis,” McBride told The Cheat Sheet in an interview. “What’s really hamstrung people in terms of moving the needle with retirement savings in particular is stagnated household income.” 

Now that we’re seeing incomes increase, McBride said it isn’t a surprise to see nest eggs grow as well.

In addition, more employers have begun to initiate automatic enrollment programs for their 401(k) accounts, along with automatic savings escalations. When people are automatically enrolled, and their retirement savings automatically increase each year, more people tend to stay in the program and save more than they might have initiated on their own. The one caveat to this, McBride said, is that most increases cap out around 6%, but it’s recommended that people should be saving 10-15% of their income in retirement accounts.

“Automatic enrollment and escalation primarily help those that otherwise might not be saving at all,” McBride explained. “People need to be taking it upon themselves to get to 10-15% consistently. A 3% contribution is nothing more than a token contribution.”

Lingering problems with retirement savings

Retirement plan with graphs and glasses

Making a savings plan | iStock.com

That jump to significant retirement savings continues to be an issue, McBride said. While the increasing savings is a good sign, he’s not completely optimistic about seeing that continue to increase over the long term. “People are saving more for retirement,” he said. “That’s good news. But that’s not to say that they’re saving enough.”

Younger Baby Boomers are a particular concern from the most recent survey. According to the results, 30% of people ages 52 to 61 saved less for a post-work life this year compared to last year. Though that could be from a number of factors, McBride said they’ve also seen the least job security among member of that age group. Younger boomers could be saving more in an emergency fund in case they lose their jobs, instead of amping up their IRA.

However, that’s a problem for McBride. That time of life is during peak earning years, and people should be taking advantage of catch-up contributions, where they can add more to their retirement accounts than was previously allowed. Those years should be focused on setting themselves up for living on a fixed income, not putting on the savings brakes. “To see people scaling back is troubling,” McBride said.

save money, figurine looking at stacks of coins.

Trying to save money | iStock.com

In addition, people of all age groups still aren’t anywhere near the 10-15% mark most experts recommend for retirement savings. “We want more people increasing the amount that they save for retirement each year. Going from 3% to 4% isn’t going to cut it,” McBride explained. According to some earlier polls, McBride said that most retirement accounts are around 7% of incomes on the high end. Another poll showed that people were only saving 10% of their incomes for all savings goals — not just retirement. 

Part of the issue goes back to the American DNA and propensity to spend instead of save, McBride added. Some improvement is happening at the margins, but McBride doesn’t see ingrained habits being overcome anytime soon. To do the heavy lifting for retirement savings on their own, it’s going to be a much harder road. “It’s not been a paradigm shift. For a lot of Americans, that’s exactly what it’s going to take,” he said. 

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