While retirement may seem like a far-out, distant phase of life, it’s something that requires significant planning and preparation to comfortably achieve. It’s no secret that the earlier an individual starts making plans to save and invest, the easier it will be for them to step away from work at an ideal age.
But unfortunately, too many people don’t prioritize retirement in their finances until it’s too late. Whether it’s the monthly expenses or a constant struggle to catch up on debt, a retirement fund is an easy place to cut the budget when needed. However, long-term, these cuts can have astronomical financial impacts.
A recent report by Coventry Direct surveyed over 1,600 Americans to dive deep into how people are really saving their money and what their financial goals and barriers are. 31% of respondents said their primary saving goal is retirement. Other areas of interest include homeownership, an emergency fund, or paying off loans.
How People Are Saving
When it comes to how people are saving for retirement, there are many mixed methods. The largest percentage, 35%, use a 401k, followed by 25% using an IRA or Roth IRA. Roughly 13% invest in both an IRA and a Roth IRA. There are many arguments for which investment strategy is the best. Ultimately, they each have their own pros and cons. However, the real winners are the ones who are actually investing.
22.3% of people aged 25-34 are not currently saving for retirement. That’s nearly a quarter of millennials leaving themselves without a plan for the future. Compounding interest means that no matter how small of a contribution you make, the earlier you start, the better. For example, CNN reports that you could put aside $3,000 a year at age 25 for 10 years and you’d have over $330,000 by age 65 – even without investing a penny after age 35.
The Truth About the Younger Generations
Despite the recent rise of popular subreddit Wall Street Bets sparking an interest in investing among the younger generations, there are still many in the younger groups who don’t see the importance (or simply don’t know where to get started) of focusing on their long-term financial strategies.
This may be attributed to a few different things. Financial literacy is not an emphasized topic in school curriculums. Unless students actively seek out information on investing, they likely only have the knowledge that was passed down to them by parents or other family members.
Additionally, financial pressures are seemingly increasing by the minute. The cost of living is skyrocketing in many major US cities making affording the basic necessities challenging, let alone thinking about putting money aside for later in life. And the global pandemic, which resulted in significant job loss and economic turmoil, certainly didn’t help.
Long Term Impacts of Saving
The Coventry Direct survey reported that 21% don’t think they’ll have enough savings for retirement someday. Individual situations aside, that is a jarring statistic. Although many people in that category hopefully will continue to build on their financial independence and surprise themselves, most would agree the thought of working until death is far from ideal.