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A recent study from BlackRock and Human Interest reveals a striking gap in retirement savings between workers with access to employer-sponsored retirement plans and those without. Data shows that median-income employees without workplace retirement benefits have saved one-eighth as much as those with an employer-sponsored retirement plan. And by the time they retire, these workers could have nearly $625,000 less than their counterparts in employer retirement programs. The research also showed that building emergency savings could encourage employees without a workplace pension plan to save more for retirement.
If you don’t have access to a retirement plan at work, a financial advisor can present you with different options for achieving your retirement goals.
A study from asset manager BlackRock and 401(k) provider Human Interest looked at projected savings rates and nest eggs for U.S. workers earning a median annual income of $60,000. According to their findings, those with access to employer-automated retirement savings tools contributed an average of 7.4% of their salary. In comparison, workers without these benefits saved just 0.9% per year.
This eight-fold gap in savings rates creates an equally large disparity in the accumulation of long-term retirement funds. The study predicts that at age 65, the average worker using their employer’s retirement plan would have accumulated $710,900 for retirement. Their counterpart without this benefit would only have $86,500, or $624,400 less.
Note that this analysis does not take into account the effects of potential employer matches. In many employer-sponsored plans, employers will match employee contributions up to a specified percentage of the employee’s salary. This benefit can significantly increase the amount of money put into a retirement savings account.
An elderly woman reviews her retirement savings.
Saving less than 1% per year makes it difficult for most workers to accumulate enough retirement savings. According to widely held guidelines, the average American needs about 75% of their pre-retirement income after leaving the workforce. With only $86,500 in retirement accounts, workers without an employment savings plan will likely face significant financial hardship in their later years.
Deficits of this magnitude can lead to all sorts of undesirable consequences, including insufficient income, diminished quality of life, and over-reliance on government programs in retirement. Access to workplace retirement accounts makes it much easier for employees to save consistently so they can maintain their standard of living after leaving full-time employment. Get matched with a financial advisor if you need help developing a retirement plan.
News about the value of savings tools for building nest eggs indicates that companies can help their employees by offering company-sponsored savings vehicles. It also offers some specific recommendations for anyone who wants to enjoy a secure retirement.
To get started, talk to your employer’s human resources department to learn more about available 401(k) or other retirement plans and how to sign up. As this research shows, maximizing these fringe benefits can significantly increase your savings.
Even if you don’t have access to workplace retirement benefits, you can take steps to save independently. Anyone can open an IRA and have their contributions automatically deducted from their paycheck while still benefiting from today’s tax benefits. Even small amounts will add up over time. Also look for other tax-advantaged savings vehicles, like health savings accounts.
In addition to using tax-deferred savings plans, try building emergency cash reserves. BlackRock found that workers with at least $1,000 in emergency savings contributed 70% more to retirement accounts and were much less likely to dip into their retirement funds prematurely.
To further boost your savings program, review your budget and look for areas to cut back on spending. Allocate these savings to retirement accounts. And increase contributions gradually when possible, for example after an increase. A financial advisor can help you develop an appropriate retirement plan based on your goals and situation.
A woman calculating how much she has saved for retirement.
Research from BlackRock and Human Interest indicates that access to workplace retirement savings platforms allows average workers to save significantly more for their future years. Without these tools, it becomes very difficult to amass enough funds to enjoy a comfortable retirement. This research highlights the importance of taking full advantage of the workplace retirement plans available to you. It also reveals the significant positive impact that creating and contributing to an emergency savings account can have on retirement savings.
Consider working with a financial advisor to review your current retirement savings and create a personalized strategy to help you achieve your goals. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three licensed financial advisors who serve your area, and you can have a free introductory call with your advisors to decide which one is best for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
Use SmartAsset’s online retirement calculator to estimate how much you need to save for retirement and develop a plan to help you reach your goal. Consistently contributing to retirement accounts is essential.
Keep an emergency fund on hand in case you face unexpected expenses. An emergency fund should be liquid – in an account that doesn’t have the risk of large fluctuations like the stock market. The tradeoff is that the value of cash can be eroded by inflation. But a high interest account allows you to earn compound interest. Compare the savings accounts of these banks.
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