Saving for Retirement

By Myra O’Dell

Relying on Social Security alone will likely cause you to fall well short of your retirement income needs. Individuals that are not participating in retirement plans, such as 401(k)s, Individual Retirement Accounts (IRAs), or pension plans may find it more difficult to meet their retirement income needs. The pie chart below from Morningstar® shows an estimate of income sources during retirement for people 65 years and older with annual incomes (wages, salaries, and self-employment) greater than $57,957.

retirement pie chart

As shown above, Social Security income only contributes 17.3% of total income for these retirees. Furthermore, many employers have replaced traditional defined benefit pension plans with defined contribution plans, such as 401(k)s, which shifts the responsibility of saving for retirement from the employer to the employee. In 1983, there were approximately 175,000 defined benefit pension plans and by 1999 that number fell to below 50,000 where it has remained ever since. Unfortunately, at a time when workers need to be saving more, it appears that most Americans are savings less. See the chart below for a historical look at savings rates since 1947.

personal savings rate

At the end of 2013, the savings rate was 4.3%. This number needs to significantly improve in order for many Americans to have a financially comfortable retirement. The good news is that there are vehicles available to help you. Perhaps one of the best vehicles for saving for retirement is an employer sponsored plan, such as a 401(k). Not only do investments grow tax deferred, but many employers offer a match. In other words, for every dollar that the employee saves in the plan, the employer will contribute a certain percentage as well. Let’s say that your employer offers a 50% match. That means that you are receiving a 50% return on your money without taking any risk. That is a deal that you just cannot pass up!

If you don’t have access to a 401(k) through your employer, there are other great ways to save for retirement. Give us a call and we can discuss your options and help you create a personal retirement plan.

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