Americans feel generally positive about their personal finances, according to a recent Gallup poll. Specifically, 56 percent of respondents rated their current financial situation as “good or excellent,” and 57 percent said that their finances are improving. Another 56 percent of surveyed Americans reported that they are regularly setting money aside, but 77 percent still said that they are at least somewhat worried about having enough money for a comfortable retirement. That agrees with an earlier American Century study which found that the single biggest financial regret among surveyed workers was “not saving enough for retirement,” and nine in ten respondents said that they wish they could go back in time and “tell their younger selves to save more.”
Similarly, a plurality of U.S. adults in a new Bankrate poll said that “not saving for retirement early enough” has been their biggest financial regret. The frequency of reported remorse about a late start increased significantly with age. Some of this is of course due to younger respondents believing that they still have a lot of time left to boost their savings, but another factor is likely the growing use of automatic enrollment, which is ensuring that many working Americans start setting aside money for retirement at an earlier stage in life. Indeed, employers can automatically deduct elective deferrals from an employee’s wages unless the worker makes an election not to contribute or to contribute a different amount, according to the Internal Revenue Service. Researchers have repeatedly demonstrated that 401(k) participation is significantly higher under automatic enrollment, and based on the latest data from the U.S. Census Bureau, nearly half of all full-time, full-year wage and salary workers in America (ages 21 to 64) are now participating in an employment-based retirement plan. Vanguard similarly found that the adoption of automatic enrollment has more than tripled since 2007, and four in ten contributing 401(k) participants in 2018 joined their plan under automatic enrollment.
Auto-enrollment is effective because on average only around one in ten workers actually opt out of a plan after being “nudged” into participating. More generally, though, the sooner anyone can start saving for retirement with a 401(k) the better because the amount of money that can be amassed using these tax-advantaged vehicles is substantial. For instance, last month we learned that the number of “401(k) millionaires” in this country has been rising for years and is now at an all-time high. That is an encouraging trend since 401(k) participants in a nationwide survey this month said that they expect to need roughly $1.7 million in order to achieve their ideal retirement. To some such a large retirement nest egg may seem out of reach but many affluent 401(k) participants have simply been making conservative yet consistent contributions for decades, therefore further highlighting the importance of an early start. Moreover, savers of all ages must understand that every contribution, no matter how small, can have a dramatic impact on their standard of living in retirement.
Sources: American Century, Bankrate, EBRI, Vanguard, Schwab, EBN
Post author: Charles Couch