Retirement Readiness: Are Younger Workers Saving Enough?
The importance of saving for retirement cannot be overstated. While many younger workers are taking steps in the right direction, a recent survey suggests that they may not be saving enough to ensure a comfortable retirement.
A Significant Amount, But Is It Enough?
According to a survey by GOBankingRates, nearly half (44%) of workers ages 21 to 34 have saved more than $50,001 in their 401(k) accounts. While this amount exceeds the median personal income of $42,220 per year, it may still fall short of a common retirement readiness benchmark. Financial firm Fidelity recommends saving at least the equivalent of your annual salary by age 30 and twice your salary by 35.
Breaking Down the Numbers
Here’s a breakdown of how much workers 21 to 35 have in their 401(k)s, according to GOBankingRates’ survey:
- 21-24 years old: 27% have saved $1-$10,000, 15% have saved $10,001-$20,000, and 12% have saved $20,001-$50,000
- 25-29 years old: 23% have saved $1-$10,000, 18% have saved $10,001-$20,000, and 15% have saved $20,001-$50,000
- 30-34 years old: 20% have saved $1-$10,000, 22% have saved $10,001-$20,000, and 21% have saved $20,001-$50,000
Other Savings and Catching Up
While these numbers show that many younger Americans may not yet be fully prepared for retirement, it’s essential to remember that they only represent 401(k) balances. Other savings, like individual retirement accounts, brokerage accounts, cash reserves, or potential inheritances, could help boost retirement wealth down the road. Additionally, workers often increase their retirement contributions later in life to make up for lower earnings earlier in their careers.
The Power of Compound Interest
As workers get older, their 401(k) balances tend to grow. However, delaying contributions can require significantly higher monthly savings later in life to reach the same retirement balance. This is because starting later means missing out on the power of compound interest, which allows investments to grow exponentially over time. For example, investing $200 per month starting at age 25 can grow to around $525,000 by age 65, assuming a 7% annual return. Waiting until age 35 to start would require contributing around $430 per month to achieve the same result.
Start Early, Even with Small Contributions
Financial planners strongly recommend starting to save for retirement as early as possible, even with small contributions like $50 per month. By doing so, you can take advantage of compound interest and set yourself up for a more secure financial future.
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