Have-nots still have time to save for retirement

The Bakersfield Californian
March 24, 2015

The increasing income gap between the top 1 percent and the rest of America continues to grab headlines. But waiting quietly in the background is a related retirement crisis.

It’s no secret that few Americans have saved enough to fund even subsistence retirements, let alone comfortable ones. Blame their spendthrift habits. But also blame the Great Recession, which tossed many aging boomers out of their jobs and sucked dry their savings.

A study released in March by the National Institute on Retirement Security reported the value of 401(k) and IRA accounts hit a record high of $11.3 trillion at the end of 2013. But the average American household is not sharing that wealth.

Institute researchers report that many Americans do not have retirement savings accounts. And those who do have annual incomes that are 2.4 times higher than those who don’t. Looking across all households, the median retirement account balance is a measly $2,500.

The institute grimly predicts that Social Security will make up more than 90 percent of the income for the bottom 25 percent of U.S. retirees. And it will be 70 percent of the income for the middle 50 percent.

U.S. salaries are stagnant. Many Americans are working low-paying jobs at companies that do not offer defined-benefit pension plans, or tax-deferred savings plans. Workers believe they cannot afford to save and they have few options to help them.

While the outlook for many is grim, it is not hopeless. Steps can be taken now that can yield great rewards in the years ahead.

  • Tax refunds. April 15 is the dreaded tax-filing deadline for most of us. It also is a great opportunity. For most Americans, a tax refund is the largest lump sum of money received each year. Save a portion of that money for retirement. Use IRS form 8888 to specify how your refund will be allocated — direct deposit into savings, checking, IRA accounts, to purchase a Series I savings bond, or a combination of these options.
  • Participate. If your employer offers a tax-deferred savings plan, participate. Start by contributing at least the employer’s matching amount, usually 3 percent. Automatically increase your contribution 1 to 2 percent each year.
  • Set up an IRA account. If your employer does not offer a tax-deferred savings plan, set up an IRA through a bank or investment firm.
  • Set up an emergency fund. To avoid withdrawal penalties and maximize retirement savings, establish a separate emergency fund to pay for extraordinary needs.
  • Cut expenses. Closely monitor expenses to eliminate non-essentials and to reduce debt.
  • Delay retirement. The older you are when you begin collecting Social Security, the larger your Social Security checks will be. Workers who can delay retirement to 70 years of age will reap many times the benefits received by colleagues who began collecting at 62.
  • Be healthy. While illness is not always predictable, exercising, not smoking, drinking in moderation and eating healthy foods may result in fewer chronic illnesses and less drain on meager retirement savings.

Investment counselors recommend a worker by the age of 55 should have saved five times his current income to be on track for retirement. While many Americans will not reach that goal, it’s not too late for them to start saving now to make a big difference in the life they will live in retirement.