How much money have you saved towards your retirement? Is it more than this pile of cash?
Chances are you have saved much less for retirement than is in this pile of cash. Chances are, you haven’t saved even one dollar!
Half of the people in the United States has not saved anything towards their retirement. If you have saved anything at all, you are ahead of about half the population. According to a report by EPI — the Economic Policy Institute — the average savings rate towards retirement as of 2013 was a jaw dropping $5,000. While that figure’s not surprising given that half the population hasn’t contributed even on cent, it’s still scary to think that more than half the population may never even have the opportunity to retire.
Even if you have some savings, a few thousand dollars over and above your Social Security retirement benefits is not going to be enough to help you retire. Those who haven’t saved enough will likely have to continue working well past their expected retirement age; perhaps all throughout their lifetime.
Who Are Saving and Who Aren’t?
Unfortunately, the retirement savings rate seems to skew heavily along racial lines. A much higher percentage of non-Hispanic Caucasians have money in their retirement accounts while Hispanics and African-Americans are far less likely to to have most in a retirement account. African-Americans and Hispanics are not the only ones without much in the way of retirement savings.
For many groups—lower-income, black, Hispanic, non-college-educated, and unmarried Americans—the typical working-age family or individual has no savings at all in retirement accounts, and for those that do have savings, the median balances in retirement accounts are very low.
Only 41 percent of African-American families and 26 percent of Hispanic families had retirement account savings in 2013, compared with 65 percent of white non-Hispanic families. Even among families nearing retirement (age 56–61), the majority of African-American and Hispanic families have no retirement account savings. Racial and ethnic gaps in retirement account balances are even larger than participation gaps—and the spread is increasing. For families with retirement account savings, the median amount is $22,000 for African-American and Hispanic families, compared with $73,000 for white non-Hispanic families
A large reason for the change is based upon the switch from defined-benefit to defined-contribution plans at work. In decades past, many people had their retirement planning done for them as their employers provided defined-benefit, more commonly thought of a pension plan. You worked, you collected a paycheck and your employer provider you with a pension when you retired. With the pension going the way of the landline telephone, fewer employers are offering pension plans at work; the onus to save for retirement falls on your own shoulders.
The Haves and the Have-nots
Americans are notoriously poor savers, regardless, those who earn higher incomes tend to have more money saved for their retirement. While half the people have nearly no savings at all, those near the top of the earning spectrum have saved much more. In 2013, the 90th percentile family had saved an average of $274,000, while the top 1 percent of families had a little bit more than one million dollars saved for retirement: $1,080,000 to be precise.
While the wealthy have more disposable income and can save for their future more easily, everyone, regardless of your income level, needs to save for money for their future. Many employers offer 401(k) retirement plans. If you employer offers such a plan, I strongly suggest that you contribute to the plan. A traditional 401(k) plan offers pretax contributions thereby lowering your taxable income.
Your employer may also offer a corporate match on your 401(k) contributions. Most companies match 50 to 100 percent of the first six percent of your salary that you contribute to your 401(k) plan. So if you are earning $100,000 a year and your employer matches dollar-for-dollar any contributions that you make, up to 6 percent, they will add an extra $6,000 to your retirement account after you contribute at least that much. Who would turn down free cash?
Start Saving Early
Thanks to compounding, your retirement savings can really add up. Let’s say you contributed $3,000 every year for 40 years into an S&P 500 index fund. That would mean that you would have saved $120,000. That’s much more than many Americans have saved today. But you would likely have much more money than that.
How About $965,446.66
Thanks to compounding, and an historic average return of 8.5 percent of your investments, your money might increase to nearly one million dollars after 40 years; using the 8.5 percent annual return, you could expect to have $965,446.66 in your retirement account after 40 years of compounded investments.
Compounding really adds up. If you didn’t touch that money for five more years, and just kept adding an additional $3,000 each year, that balance might increase to almost $1.5 million.
Your employers match gets included as well. If your employer matched your $3,000 annually investment dollar-for-dollar, you could basically double these figures.
If you haven’t started saving for retirement yet, please start now. Go to your employer and start putting money into your company’s 401(k) plan. If your employer doesn’t offer a 401(k) plan, you can make contributions to an IRA account on your own.
Half the population has no savings at all. They will likely have to work their entire lives. Start saving money now so that you can retire comfortably. The earlier you start, the more time your money has to compound. What are you waiting for. Stop procrastinating. Start saving. Your future self will thank you.