This is National Save for Retirement Week, a time for all of us to focus on our individual long-term financial needs and to educate ourselves on what we need to do to ensure a secure retirement. If you’re not too far off from retirement, you’re probably spending a lot of time planning. However, if you’re a young worker or a woman still in the prime of your working years, planning can often take a back seat to other life concerns.
Here’s some sobering news: The Employee Benefit Research Institute (EBRI) reports that only 44 percent of Americans have tried to calculate how much they need to save for retirement. While Social Security has been a primary source of retirement income for several generations, and will continue to pay benefits in the coming years, Congress never intended it to be the sole source of retirement income. Most of America’s workers will need to rely on Social Security, retirement savings through their employer, and personal savings to ensure a stream of income to last long after leaving the workforce.
But here’s the good news: a workplace savings plan is often the easiest place to save, if one is available to you. If your employer offers a 401(k) or similar defined contribution plan, you may need to take the first step and sign up for it. Sometimes, your employer will automatically sign you up. Taking part in such a plan is simple, and often there’s additional free money in the form of a matching contribution by your employer.
Sometimes younger workers don’t take advantage of employer-provided or other tax-preferred retirement accounts. Maybe some of you feel you’re not earning very much, or you face demands on income such as housing costs, school loans, children, or the occasional temptation for the latest gadget or fashions. But, saving matters. With the power of compounding and the long-term growth of the market, putting away a little bit of money each month will make a big difference to future security. Starting early can mean having to save much less later on in life.
Unfortunately, many mid-career working women are at a disadvantage heading into retirement. Women are more likely to work in part-time jobs that don’t qualify for a retirement plan. And working women are more likely than men to interrupt their careers to take care of family members. Therefore, they work fewer years and contribute less toward their retirement, resulting in lower lifetime savings. If you work and if you qualify, join a retirement plan now. Of the 62 million wage and salaried women (age 21 to 64) working in the United States, just a reported 45 percent participate in a retirement plan. Remember, even small amounts can earn interest and add up over time. And, on average, a female retiring at age 65 can expect to live another 19 years, 3 years longer than a man retiring at the same age. Savings can increase a woman’s chances of having enough money to last throughout her retirement.
It is true that there are risks with a 401(k) or similar plan. There’s the risk that you will not save enough money to carry you through retirement, that investment decisions won’t help to grow your assets, or a market meltdown will decimate your 401(k) account balance as you are nearing retirement. But the greatest risk would be not saving at all. As of March 2011, 58 million private sector workers had access to a defined contribution plan, but nearly a third were not participating in the plan. That’s a risk you can easily avoid by taking part now. If such a plan isn’t available to you, you can still start your own retirement savings program by opening up an Individual Retirement Account (IRA).
Finally, whether you’re just starting out, or getting closer and closer to retirement, start working with your plan’s advisor or another professional to determine your long-term financial needs. Make sure, however, that the adviser is working only in your best interest. Ask your advisor whether he or she is a fiduciary (someone who is required by law to put your interests first) and if he or she will receive any form of compensation from a third party (like a particular investment firm) by working with you and steering you toward certain investment products. If the advice provided is in the advisor’s best interest and not yours (for example, if the fees charged are greater than they might be for a comparable investment), your bottom line could suffer. And, when planning for retirement, your bottom line is the most important thing to be thinking about.
Phyllis Borzi is the Assistant Secretary of Labor for the Employee Benefits Security Administration.