Retirement Savings: What’s Hot, What’s Not
Published on February 3, 2015
Americans are saving for retirement in a new way. They have thrown out the traditional three-legged stool (Social Security, employer-sponsored pension plans, and private savings) and replaced it with a pyramid.
According to the Investment Company Institute, the five basic components of the retirement pyramid are: Social Security, home ownership, employer-sponsored retirement plans (both private-sector employer and government employer plans, as well as defined-benefit and defined-contribution plans), IRAs, and other assets.
But, the reality, as reported by the Boston College Center for Retirement Research, is that it is a shaky pyramid. In fact, working-age households are not saving enough to maintain their current standard of living when they retire. With Social Security, Medicare, and underfunded federal and municipal pensions representing the biggest risks for future retirees, Americans need to plan ahead so they won’t get left behind.
Being prepared to supplement Social Security with a robust retirement savings plan is key. In fact, workers should anticipate getting between one-quarter to one-half of their retirement income from retirement savings plans, such as 401(k)s. However, in order to generate this level of income, the typical household must save about 15 percent of earnings—which is well above today’s actual saving rates.
What’s trending in retirement savings? According to a recent Fidelity Investments report, retirement savings trends include:
- Companies offering Roth 401 (k) plans; investing in these plans is increasing, particularly among younger participants in lower tax brackets.
- A rise in self-directed brokerage windows for participants who want to invest in options outside of their company’s core 401(k) fund lineup through self-direction.
- Increasing the use of high deductible health plans (HDHPs). HDHPs are gaining traction and helping people save for future health costs in a tax-advantaged account.
- Growing prevalence of “do it for me” 401(k) options. According to the Fidelity survey, more than two-thirds of respondents admitted to not having the time or investment knowledge to be confident in their retirement investment decisions.
Are you up to date on the latest retirement investment tools? Or, are you like many people faced with the thought of retirement—unprepared?
What’s Not Hot?
Being unprepared is not hot. Retirement should be a time in your life where you can relax and enjoy the fruits of your hard work. But, unfortunately, many retirees are not financially ready to retire.
TIAA-Cref’s Ready-to-Retire Survey asked retirees what they wished they had done to better prepare for their retirement. Here’s what they reported:
- Started saving sooner. Time is on your side if you commit today to a serious savings routine. Think of the dramatic benefits long-term compounding will have on your nest egg.
- Saved more. Yes, there are many financial obligations that your hard earned money has to cover but there are ways to free up some extra dollars for retirement.
- Invested more aggressively. Determine the right balance for you between risk and reward.
A self-directed retirement account should be on everyone’s wish list as a great way to boost retirement savings through alternative assets. Savvy investors who already know and understand nontraditional investments can develop a more diversified, tax-advantaged portfolio than in regular IRAs or 401(k) plans. Self-directing retirement investments allows for a broader array of assets.
For more information about self-direction as a retirement strategy, or to open a new self-directed IRA, contact Next Generation at (888) 857-8058 or Info@NextGenerationTrust.com, or click here to read through our Starter Kits.