Retirement savings not catching up with improving economy
Bob Bentz understands why younger people don't save for retirement. When he was in his 20s, he was saving for retirement at his work. But then he decided he wanted a Mazda RX-7 sports car.
"It was red and it was fast," says Bentz, who now owns Advanced Telecom Services — a mobile marketing agency in the Philadelphia area. "So instead of that money growing for 30 years, I withdrew it early. I even got a 10 percent penalty for taking it out."
But Bentz is now 53, and like many Americans is nudging closer to retirement age. Unfortunately, many Americans may be acting more like Bentz in his 20s. A new survey by Bankrate.com found that despite an improving economy, most Americans are not putting more into their retirement savings.
The survey, conducted at the beginning of August, found that 54 percent of adult Americans say they are contributing the same amount to retirement savings accounts such as 401(k)s and IRAs as they did last year. Seventeen percent say they are saving less, while only 18 percent say they have upped their savings. Eight percent say they contributed nothing at all. Experts are concerned and say there are easy ways to be more prepared for retirement.
Not a surprise
David Rae, vice president of investments at Trilogy Financial Services in Los Angeles, is not surprised that people are lowering or not increasing their retirement savings.
"Many people are underestimating what they need to save for retirement," he says. "People are not thinking early enough about retirement."
Rae worries about people who wait until they are 55 or 60 to start planning for retirement.
"If you wait that long, you will have to save more than you make to get enough money," he says, half joking. "And for people to save more than they make is hard."
People start to realize, he says, once they hit 50 or so, that they are getting near retirement and start to get serious about it — creating a rush to the finish line to get ready.
But Bankrate.com's survey also found that employed Americans between 50 and 64 years old were the most likely of all age brackets to be saving less this year than last year.
"You would think it would be the opposite," says Saul M. Simon, a Certified Financial Planner in New Jersey. "Uncle Sam gives people aged 50 years old and up the opportunity to increase their contribution."
"Catch-up contributions" allow people age 50 and older to contribute more to their 401(k)s or IRAs. The most they can put in for 2013 is $5,500 for 401(k)s and $1,000 for IRAs. This is on top of the $17,500 allowed for 401(k)s for those under 50 and on top of the $5,500 allowed for IRAs for those under 50.
But just as this added impetus and opportunity to save more at age 50 kick in, other things kick in the opposite direction, says Bentz in Philadelphia.
"I have a son who just graduated and another one just going into college," he says. "You pick up a lot of extra expenses when you are at the 50-ish age if you had children. I know it becomes more difficult."
The need to save is real, though.
"People are getting Social Security checks that are relatively small," Rae says. "And if they don't save money, they will not have enough."
Simon, who is the author of "Simon Says: Love Your Legacy," says pensions are also, for the most part, out of the picture.