February 28, 2013
By Nevin Adams, Director, American Savings Education Program (ASEC), Employee Benefit Research Institute
America Saves Week is an annual opportunity for organizations to promote good savings behavior and a chance for individuals to assess their own saving status. Take the pledge today to commit to your savings goal.
Set a goal and make a plan to save. Join over 310,000 people who have pledged to save and take the America Saves Pledge today. Already taken the pledge? America Saves encourages you to recommit to your savings goal and re-pledge today.
It’s easy, in the normal press of life, to put off thinking about retirement, much less thinking about saving for a period of life many can hardly imagine. We all know we should do it—but some figure that it will take more time and energy than we can afford just now, some assume the process will provide a depressing, perhaps even insurmountable target, while others don’t even know how to get started.
Here are five reasons why you—or those you care about—should save for retirement now:
Because you don’t want to work forever.
If you want to stop working one day, you are going to have to think about how much income you will need to live after you are no longer working for a paycheck.
Because living in retirement isn’t free.
Many people assume that expenses will go down in retirement—and, in fact, a recent EBRI Issue Brief noted “With the age 65 expenditure as a benchmark, household expenditure are lower by 19 percent by age 75, and 34 percent by age 85….” On the other hand, there are changes in how we spend in retirement as well—and they aren’t always less. That same EBRI report notes that health-related expenses are the second-largest component in the budget of older Americans, and a component that steadily increases with age. “Health care expenses capture around 10 percent of the budget for those between 50–64, but increase to about 20 percent for those age 85 and over.” And those spending shifts don’t take into account the possibility of a need or desire to provide financial support to parents and/or children.
Because you may not be able to work as long as you think.
Twenty-five percent of workers in the 2012 Retirement Confidence Survey say the age at which they expect to retire has changed in the past year. In 1991, 11 percent of workers said they expected to retire after age 65, and by 2012 that has more than tripled, to 37 percent. Those expectations notwithstanding, half of current retirees surveyed say they left the work force unexpectedly due to health problems, disability, or changes at their employer, such as downsizing or closure (see “The 2012 Retirement Confidence Survey: Job Insecurity, Debt Weigh on Retirement Confidence, Savings”).
Because you don’t know how long you will live.
People are living longer and the longer your life, the longer your potential retirement, particularly if it begins sooner than you think. Retiring at age 65 today? A man would have a 50 percent chance of still being alive at age 81 (and a woman at age 85); a 25 percent chance of living to nearly 90; a 10 percent chance of getting close to 100. How big a chance do you want to take of outliving your money in old age?
Because the sooner you start, the easier it will be.
Aside from “I can’t afford to”, “getting started” is perhaps one of the most commonly cited problems in saving. But the sooner you start, the more the “miracle” of compounding – the reality that the income earned on your savings becomes part of your account, and earns more income that, in turn, adds to the account balance, which earns more income, and so on. The net result, of course, is that, at the end of a savings career, you wind up with a lot more money than you ever thought possible. And the sooner you start, the longer it has to work for you.
But regardless of how old you are, or how long until you plan, or hope, to retire - it’s never too late to start saving.
-Nevin E. Adams, JD