More than half of working Americans responding to a recent Bankrate survey say they are behind on saving for retirement, and many have dipped into their retirement savings early. That could mean less money in the pot for long-term care in the future.
“It might mean more future retirees that have depleted nest eggs and can only afford a certain level of care,” Bankrate Chief Financial Analyst Greg McBride, CFA, told the McKnight’s Business Daily.
“Americans still feel as if they’re behind in retirement savings, and the pandemic didn’t help. One in five workers with a retirement account made a pre-retirement withdrawal during the pandemic,” McBride said.
The economic effects of the pandemic have been a “wake-up call” for many individuals as to the state of their retirement savings, according to Bankrate.
“The power of compounding is such that every dollar you put in in your 20s could be $15 or $20 by the time you retire,” McBride said. “When you take that money out, it’s a one-way street. It doesn’t go back in even, so you’re robbing your future selves of a big chunk of retirement savings.”
It’s not too late to bump up the savings, according to McBride. In his experience, “GenX and younger baby boomers are starting to put away more, rather than less, toward their retirement now as compared to pre-pandemic.”
Twenty-four percent of survey respondents said they are beginning to set aside more for retirement than they were before the public health emergency, including 9% who are saving “much more” and 16% who are saving “slightly more.”
Only 14% of survey respondents said they are saving less for retirement now than before the pandemic, including 8% who are saving “much less” and 5% who are saving “slightly less.” Of those who said they are saving less for retirement now, the predominant reasons cited were loss of income (49%), additional expenses (32%), additional debt (21%), wanting to keep more cash on hand (19%) and helping other adult family members financially (14%).
Thirty-nine percent of participants indicated that they are saving about the same amount for retirement now as they were before the pandemic, the company said.
McBride recommends that workers of any age take advantage of a tax-advantaged retirement savings option, such as a workplace 401(k) or an individual retirement account.
“The tax-advantaged plans essentially mean the government is helping you save for retirement. With a workplace plan like a 401(k), if there’s an employer match, then both the government and your employer are helping you to save for retirement,” he said.
Unfortunately, McBride said, many people lack access to a workplace plan.
“However, if you or your spouse have earned income, you are eligible to start an IRA. So, even in the absence of a workplace retirement plan, you can and should still save for retirement on a tax advantage basis,” he said.
