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Saving for Retirement: The Rewards of Starting Young

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It makes sense that starting to save earlier in your working life would give you a leg up in preparing for retirement.

Now, a new report by Wells Fargo puts numbers to this notion. Researchers found that working Americans 60 and older had begun saving for retirement on average at age 37, while those between the ages of 55 and 59 had begun on average at 31.

The difference in savings accrued are telling: a median $150,000 toward a retirement savings goal of $500,000 for the younger cohort versus a median $50,000 toward a $300,000 retirement savings goal for those who started later.

“The fact that people in their late 50s have three times the savings of those age 60 or older shows that starting early and saving consistently are key to retirement saving,” Joe Ready, head of Wells Fargo Institutional Retirement and Trust, said in a statement.

Harris Poll interviewed 851 working Americans 40 or older and 400 retired Americans by telephone from July 13 to Aug. 10, surveying attitudes and behaviors around planning, saving and investing for retirement. Working Americans were employed full-time or at least 20 hours if they were working part-time or self-employed. Retired Americans self-identified as retired regardless of age.

Respondents’ reported median annual household income varied by age:

  • 40–49 years old: $87,000
  • 50–54 years old: $91,000
  • 55–59 years old: $100,000
  • 60+ years old: $70,000

Waiting Till Later

According to the report, many working Americans assume they can put off saving, as they expect to have more time and money to save later in life.

A third of working Americans in the survey, ages 55 to 59, said this was their approach to retirement saving, compared with 21% of those 60 or older with the same plan.

In addition, 63% of those 55 to 59 and 49% of those 60+ hoped to earn more money in the future to save enough for retirement.

Fifty-four percent of the working 60-plus group planned to work until “at least 70” in order to have enough savings for retirement, compared with 40% of the younger group.

But working longer may not be the solution: 49% of the retired respondents said they had retired earlier than planned, many as a result of conditions beyond their control, such as health or because of an employer’s decision.

Only 7% retired earlier than planned because they had adequate savings.

“Unforeseen circumstances crop up, and this is really important for people to recognize,” Ready said.

Health care costs in retirement is one area that people may not predict correctly. Fifty-one percent of retired respondents said they were spending “more than they expected” on health care in retirement.

Consistency Counts

Forty-seven percent of retired respondents and 45% of those 40 or older and still working said they had or have saved for retirement consistently since the first day they started working. Wells Fargo called these individuals “consistent savers.”

The study found that income level was not necessarily a factor in being a consistent saver, as 31% of current workers with less than $50,000 in household income said they had consistently saved since they began working.

The median retirement savings accrued by working consistent savers 40 years or older was $160,000, compared with $60,000 saved by those who did not consistently save.

Consistent saving breeds a more optimistic outlook about the future, researchers found. Seventy-one percent of workers 40 or older who were consistent savers believed they would have enough saved to live comfortably through their retirement years, versus only 48% of non-consistent savers.

Consistent savers were also much less likely to forecast a drop in their standard of living in retirement, and nearly half of retirees who were not consistent savers acknowledged that their standard of living had in fact declined.

The Retirement Plan Difference

The study said seven in 10 workers 40 or older had access to a 401(k) plan or equivalent, and this strongly influenced retirement saving.

Seventy-three percent of those with access said they would not have saved as much for retirement as they had without a plan.

Consistent savers with access to a 401(k) saved a whopping four times more for retirement than consistent savers without access — $200,000 median vs. $50,000 median.

Eighty-four percent of workers with access said they felt more secure about their retirement because they were contributing to a plan, and 61% said they would be able to save enough through their 401(k) to live comfortably in retirement. Wells Fargo said participating in a 401(k) plan was becoming the equivalent of a formal retirement plan:

  • 38% of workers said participating in a plan was their current retirement plan
  • 30% said that their retirement plan was a comprehensive savings and investment plan constructed with a financial professional
  • 17% said their retirement plan was Social Security

“The power of the 401(k) comes across in this data, and it’s clear that people get the most benefit when they utilize it right at the start of their working life,” said Ready. “Access to payroll deductions for automatic saving, institutionally priced investments, and education helps participants achieve positive results for their retirement.”

A strong majority of workers 40 and older expressed satisfaction with the 401(k) as a retirement vehicle, regardless of whether they had access to one.

However, 53% of workers with access said they would like more help from their plan to make sure they were making the best choices for their retirement.

Asked what they would do with it if they were to leave their job in the next 12 months, 68% of respondents enrolled and contributing to a 401(k) said they would roll it over, and 30% would leave it alone.

Only 1% of workers said they would cash it out.

Retirement Anxiety

The survey found anxiety about retirement in America running high, with 81% of workers 40 and older and 70% of retirees saying it was in a “crisis state.”

Seventy-six percent of consistent savers agreed with this sentiment.

Thirty-four percent of workers 60 and older believed they would need to win the lottery to survive financially in retirement, compared with 21% of those 55 to 59.

One-third of workers aged 60-plus believed they will never retire and would work until they died or were too sick to work, versus 19% of their younger counterparts.

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