Although Americans have good intentions about saving for retirement, most are only stashing 5.5 percent of their disposable personal income, according to a new study.
Compare that with the 1970s, when Americans saved 13 percent.
Bank of America Merrill Lynch and Age Wave’s Finances in Retirement study found that the most common trigger causing Americans to save for retirement is an employer offering a retirement plan and providing information on how to take advantage of the plan.
“Those who exercise that discipline to save and take full advantage of employer programs and tax-deferred retirement plans will substantially raise the likelihood that they'll accumulate a large nest egg for retirement,” said Lorna Sabbia, head of retirement & personal wealth solutions with Bank of America Merrill Lynch.
The study further found that 24 percent more employees contributed to their company’s retirement savings plan in the first half of 2016 than in 2015.
“Millennials increased their rate of retirement contributions during the first half of 2016 more than any other age group, which is a positive sign that the younger generation is actually waking up to this responsibility that they will bear,” Sabbia said.
Specifically motivating millennials to save is the Health Saving Accounts (HSA).
“Employers are combining the 401k and the HSA as a way to entice younger, even middle-aged people, to save and accumulate assets at an earlier age,” said Kevin Crain, head of workplace financial solutions for Bank of America Merrill Lynch.
In fact, health was cited as the top concern in retirement. The average 65-year-old couple will spend $259,000 throughout the rest of their life covering out-of-pocket health care costs, according to Dr. Ken Dychtwald, president and founder of Age Wave.
“The No.1 reason that people don't work as long as they had planned is because they have a health event,” Dychtwald said. “Health is unpredictable.”
Emotional wellbeing in retirement versus actual accounting is another motivating factor as to why people focus on financial preparedness.
“Retirees had the highest level of emotional wellbeing, were experiencing the most fun and had the highest levels of happiness of any age group in the country,” said Dychtwald.
With millennials expecting 65 percent of their retirement income to come from personal sources, people are seven times more likely to say they're earning enough money to create financial peace of mind.
“That's what really matters to them,” Sabbia said. “Financial peace of mind means living comfortably within your means. They also want to feel that they have the financial resources to live as they choose and to feel confident of weathering any unforeseen expense.”
Quality of longevity of life in retirement is another trigger causing Americans to focus on saving for retirement.
“Increasing longevity and the influx of retirement among baby boomers are transforming retirement as we know it from a time of winding down to a stage filled with new freedoms,” Crain said.
Some 87 percent said they’re willing to increase the use of discounts and special offers for leisure activities.
“With boomers moving into this stage of life,” Dychtwald said. “They will have two and a half trillion hours of leisure to fill.”
Juliette Fairley is a business and finance journalist who has written four personal finance books and has written for major news organizations. Juliette can be reached at email@example.com.
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