American families give themselves the best chance at a secure retirement by starting to invest as soon after they start working as possible, according to a study released today that was commissioned by three trade groups involved in the retirement sales industry.
The report, Saving Early--The Road to a Secure Retirement said that investing even small monthly amounts of money in a 401(k) or IRA early in life can make a real difference in an individual’s ability to retire comfortably.
“In fact, small contributions today often matter even more than big contributions down the road,” the report said.
The report was commissioned by the Financial Services Roundtable (FSR) in partnership with the Financial Services Institute (FSI) and the Retirement Security Coalition (RSC).
“You can take out a loan for a car, for education and for a house – but you can’t take out a loan for retirement. The more people learn about saving early and being disciplined in saving, the better off they will be in retirement,” said FSI President & CEO Dale Brown.
However, the report does caution that starting to save early does not guarantee a perfect retirement. Factors such as the state of the stock market, real estate values and healthcare costs will all play a part and were apparent in the 2008 economic collapse.
But the report said, “when individuals embrace saving early for retirement and make it a priority throughout their earning years, they put the power of compound interest to work in their favor.”
For example, saving just $50 more a month could mean hundreds of thousands of dollars of additional retirement savings.
The financial services industry manages $17 trillion in retirement savings. It released the report in advance of Retirement Savings Week and the broader Financial Literacy/Capability Month.
The report seeks to provide critical information for those saving for the future, those simply considering starting to save or those who have never thought about saving.
One reason the report was released was that U.S. employees have “witnessed a dramatic shift” in how people plan and save for retirement. Traditional streams of retirement income such as defined benefit contributions like pensions or social security benefits are being eclipsed by 401(k)s and Individual Retirement Accounts (IRAs), products that were obsolete 30 years ago.
“The trend towards private retirement savings accounts is especially clear among non-retirees,” it said.
Nearly two-thirds of non-retirees, 64 percent, look to private retirement accounts like 401(k)s or IRAs as major funding sources when they retire, the report said. Only 26 percent plan to rely on Social Security, according to Gallup polling, at the same time, of current retirees, the majority still depend on Social Security, the report said.