As you near retirement, making sure you have a healthy nest egg is important. After all, you want to be able to enjoy your “long vacation,” right?
Whether you plan to stay at home or become a snowbird or globetrotter, building your savings up can give you more spending freedom and a sense of security in retirement. Surprisingly, a new report from the United States Government Accountability Office (GAO) revealed that many Americans approaching retirement may not have this financial freedom and security. The study’s findings show part of a worrisome trend of people approaching retirement with little or nothing stored away. But, this report isn’t all bad news!
What the Study Found
The GAO’s recent report analyzed the data from the 2016 Survey of Consumer Finances to figure out the percentage of American households, ages 55 or older, with some sort of retirement funding. Forms of savings considered included classic savings accounts, as well as other personal savings accounts like 401(K) or Roth IRAs. The group also looked at how many individuals plan to rely on, or are relying on, a defined benefits (DB) plan for income in retirement. What the GAO found was startling.
Nearly half (48 percent) of the households approaching or in retirement in 2016 had absolutely nothing saved for retirement. Even worse, over half of this group (29 percent) had no retirement savings and no DB plan to rely on once they retired. The rest of this group (20 percent) had a DB plan, but still lacked savings. Researches also looked at seniors with retirement savings and compared all their findings to those from 2013. You can see the results of the comparison below.
|Household financial resources||2013||2016|
|No retirement savings||52 percent||48 percent|
|No retirement savings and no DB plan||29 percent||29 percent|
|A DB plan but no retirement savings||23 percent||20 percent|
|Retirement savings but no DB plan||23 percent||26 percent|
|Retirement savings and a DB plan||25 percent||26 percent|
The Good News
Luckily, there’s some positive news from this study. While there’s still a significant number of seniors without retirement savings or a pension plan to fall back on in retirement, this number seems to be shrinking!
In the three years between the two studies, the number of seniors without any savings dropped four percent. In fact, across the board, there was a growth in seniors with savings, and a growth in seniors with both retirement savings and a DB plan.
The only real drop came with seniors having DB plans but no retirement savings. But, DB plans have been becoming rarer as businesses are increasingly favoring 401(K) or Roth IRA plans for their employees. Generally speaking, while the number of seniors without any sort of savings or retirement funds remains high, the problem appears to be getting better.
Why Savings are So Important
Whether you’re just entering the workforce, about to leave it, or haven’t worked in decades, having some form of savings can make a massive difference in your life. The older you get, the more important having some sort of financial plan in place, the better.
As we explored in our article “Why Financial Literacy is Important,” being smart with your money and fostering saving skills presents benefits in both the short and long terms. Having a viable savings plan becomes even more essential when discussing retirement, since funding your own retirement has become the most realistic strategy as we move away from pensions. Social Security and Medicare can help you afford many of your needs, but as the costs-of-living and life expectancies grow, you’ll likely need some savings to fall back on.
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This new GAO retirement security study was a mixed bag of news for seniors and their loved ones. While the number of seniors without savings or DB plans is slowly shrinking, the number is far too high. Considering how essential having some savings can be to your retirement plans — not to mention the need for emergency funds — we must continue to spread the importance of financial literacy skills. Considering the positive trend we’re seeing, we seem to be taking steps in the right direction!
All data present in this article comes directly from the March 26, 2019, GAO update on retirement security.