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A recent survey by BlackRock and Human Interest shows that there is a striking gap in retirement savings between workers who have access to employer-sponsored retirement plans and those who do not. The data shows that average-income workers without a retirement benefit save one-eighth as much as workers with an employer-sponsored retirement plan. And by the time they retire, these workers could have nearly $625,000 less than their counterparts with an employer retirement program. The study also found that building emergency savings could encourage workers without retirement plans to save more for retirement.
If you don’t have access to a workplace retirement plan, a financial advisor can guide you through several options to achieve your retirement goals.
Research from asset manager BlackRock and 401(k) provider Human Interest examined the savings rate and predicted nest eggs for U.S. workers with an average annual income of $60,000. According to their findings, those with access to automated, employer-based retirement savings tools contributed an average of 7.4% of their salaries. By comparison, workers without such benefits saved just 0.9% annually.
This eightfold gap in the savings rate creates a comparably large disparity in long-term pension fund accumulation. The research shows that the average worker using their employer’s pension scheme would have accrued $710,900 towards their pension by age 65. Their counterpart without this benefit would only have $86,500, which is $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 certain percentage of the employee’s salary. This benefit can significantly increase the amount of money going into a retirement savings account.
An older woman looking at her retirement savings.
Saving less than 1% per year makes it difficult for most employees to build up sufficient retirement savings. According to commonly used guidelines, the average American needs about 75% of pre-retirement income after leaving the workforce. With only $86,500 in retirement accounts, workers without employment-based savings plans are likely to face significant financial shortfalls in their later years.
Deficits of that magnitude can lead to a variety of undesirable consequences, including inadequate income, reduced quality of life, and over-reliance on government retirement programs. Accessing 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 setting up a retirement plan.
The news about the value of savings tools for building money pots indicates that companies can help their employees by offering company-sponsored ways to save. It also contains some specific recommendations for anyone who wants to enjoy a secure retirement.
To get started, contact your employer’s HR department to learn more about any 401(k) or other retirement plans available and how to enroll. As this research shows, maximizing these workplace benefits can significantly increase your savings.
Even if you don’t have access to workplace retirement benefits, you can take steps to save on your own. Anyone can open an IRA and have contributions automatically deducted from their paycheck while taking advantage of current tax benefits. Even small amounts will worsen over time. Also look at other tax-advantaged savings instruments, such as health savings accounts.
In addition to using deferred savings plans, try to build up some emergency cash reserves. BlackRock found that workers with at least $1,000 in emergency savings contributed 70% more to their retirement accounts and were much less likely to tap their retirement funds prematurely.
To boost your savings program even further, take a look at your budget and look for areas where you can cut back. Allocate those savings to retirement accounts. And if possible, increase contributions gradually, for example after a pay increase. A financial advisor can help you draw up an appropriate retirement plan based on your goals and circumstances.
A woman calculating how much she has saved for her retirement.
BlackRock and Human Interest’s research shows that access to retirement savings platforms at work allows the average worker to save significantly more for their later years. Without such tools, it becomes very difficult to accumulate enough money for a comfortable retirement. This research highlights the importance of making the most of any workplace pension schemes available to you. It also shows 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 assess your current retirement savings and create a customized strategy to help you achieve your goals. Finding a financial advisor does not have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can have a free introductory meeting with your advisors to decide which one you think is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Use SmartAsset’s online Retirement Calculator to estimate how much you need to save for retirement and create a plan to reach your target amount. Contributing consistently to retirement accounts is critical.
Have an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations like the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But with a high-interest account, you can earn compound interest. Compare savings accounts from these banks.
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