Forty Percent of Americans Not Saving for Retirement

A LIMRA survey revealed that many Americans who have access to an employer-sponsored defined contribution plan do not take full advantage of the tax-deferred savings.

“These findings are alarming,” said Matthew Drinkwater, associate managing director, LIMRA Retirement Research. “Our research indicates that fewer future retirees will have pensions to pay for their living expenses and more will be relying on their personal savings to fund their retirement.  Without a significant change in savings behavior, many Americans will not have enough money to afford to retire.”

The survey also found that 19% of adults not yet retired typically save less than $100 a month, while more than a quarter (27%) of consumers save $100 to $499 a month.  Even those with household incomes of $50,000 or more, a sizeable proportion (42%) are either saving $100 or less, or nothing, each month.

Looking at pre-retirees, the results were not much better.  Forty-one percent of pre-retirees are not putting aside any money for retirement and a little more than one-fifth (21%) of pre-retirees save less than $100 a month.   

“People may think they will just continue to work until they die, but our research shows that 56% of retirees retired before they expected; 43% were involuntary.  So the option may not be theirs,” noted Drinkwater.   

Employer-sponsored retirement plans (401(k), 403(b), etc.) are an easy way for employees to save for retirement tax-free, says LIMRA.  It’s study revealed that many Americans who have access to one of these plans do not take full advantage of the tax-deferred savings.   

While 55% of surveyed adults do not contribute at all to an employer-sponsored plan, of those that do, 48% contribute less than five percent of their annual earnings.  Women are more likely than men to contribute less than three percent of their earnings (19% versus 13%, respectively).

The silver lining would be that despite the poor economy, LIMRA says only 12% of plan participants have decreased their contribution rate over the past year. Twenty-four percent increased their saving rate (i.e., the percent of annual earnings saved) and 64% kept their contribution rate constant.

“Obviously, educating people about the benefits of systematic saving is critical,” said Drinkwater. “But research proves that auto-enrollment and auto-escalation programs within employer-sponsored retirement plans are valuable tools to help employees get to adequate contribution levels that will help them reach their financial goals in retirement.”