Americans are making a series of easily fixable mistakes that are slamming their retirement savings. First, they are not starting to save early enough. Someone earning $30,000 who starts to save 11% annually at 25 years old would have a balance at retirement of about $370,000, according to Frederik Axsater, global head of defined contribution SSGA . The same person, using the same investment strategy, who waits until they're 40 would only amass a little over $150,000, or a nearly 60% difference. Next, they are not saving enough. In Axsater's view, the compression of long-term capital market expectations combined with greater life expectancy is causing a gap in retirement security for participants. With encouragement and nudging from plan sponsors, participants can increase participation, savings rates and duration of contributions. Currently 40% of employees don't have access to a retirement savings plan through their employer, according to Axsater. 'Left with too many decisions about when to save, how much to save, how to invest, when to retire, and how much to spend in retirement leaves participants overwhelmed and often results in them taking no action at all,' said Axsater. According to SSGA, 40% of investors think investment products are 'overly complex,' and 34% feel 'overwhelmed' by the investment choices available to them. Americans also tend to be guilty of not having the right investment for the two key retirement phases: Accumulation and Elderhood. 'We know what the solutions for the accumulation phase are - automatically enroll participants into a target date fund at a sufficiently high contribution rate,' said Axsater. 'However, participants face more complexity in the retirement phase and current target date funds do not provide automated solutions.' Elderhood, according to Axsater, is a concept relating to the latter part of retirement, age 80 and beyond. It is gaining importance as we live longer lives. 'If we plan for it, then we can look forward to lives filled with security, comfort and the satisfaction of a life well lived,' said Axsater.
about 1 year ago
Five Mistakes That Are Slamming Your Retirement Savings | NewsLook