Many Americans are aware that they struggle with old-age financial preparedness. A plurality of U.S. adults recently surveyed by Bankrate, for instance, said that not saving for retirement early enough has been their biggest financial regret. That is not too surprising since the sooner people can start setting money aside, the more likely they will be able save enough to achieve a comfortable and financially secure retirement. In fact, a new Fidelity Investments analysis estimated that a hypothetical 25-year-old could gain a “whopping $100,464 of extra retirement income” simply by contributing another $33 to his or her 401(k) account each month.
Sadly, too many Americans fail to start setting aside money for retirement early on in their working careers. Why does this occur? One possible reason is because long-term financial security often takes a back seat to near-term issues. Evidence of this was seen in an earlier study by Boston College’s Center for Retirement Research (CRR), which found that the correlation between surveyed workers’ overall personal financial assessments and their day-to-day financial troubles, e.g. difficulty covering expenses and a lack of emergency funds, was significantly higher than with long-term challenges such as retirement planning. Put simply, people tend to give more weight (value) to their ability to cover near-term expenses when gauging their overall financial well-being.
Similarly, a Natixis Global survey found that a 51 percent majority of Americans said that they would agree with the statement “I need my money today,” and 37 percent reported that they had already withdrawn funds from their retirement account. Thirty-eight percent of those respondents said that they tapped into their long-term savings early for a financial “emergency,” and 19 percent reported that the money they took from their retirement nest egg was used to help purchase a home. Such behavior may prove to be detrimental to respondents’ old-age well-being considering that survey participants on average said that they expect they will need at least $805,000 to fund roughly 23 years of retirement.
Sources: Bankrate, Boston College (CCR), Benefits Pro, Natixis Global Asset ManagementPost author: Charles Couch