Saving for retirement is a perennially popular finance topic, and for good reason. The majority of American workers agree that saving for retirement should be a priority, but their actions are usually different than their stated priorities. The National Institute for Retirement Security has undertaken a study that shows American retirement savings are now in a crisis.
Automatic opt-ins for employer-sponsored retirement funds are aiming to make savings automatic. This will positively affect millennials and future generation’s savings as older generations will not have had as much time to benefit from the automatic opt-in feature.
Target Date Funds
Related to the automatic opt-in feature included in many employer-sponsored 401(k) plans, the Pension Protection Act of 2006 approved target date funds as a 401(k) default investment option. This option has been gaining steam in employer-sponsored plans ever since it was approved. Sometimes these funds are known as age-based or life cycle funds.
The investment philosophy of these funds is to shift the allocation of investments to a more conservative stance as the holder of the fund gets older. There are two categories of target date funds. One type of fund has the target date as the retirement date, with the view that the retiree will cash out of the fund when he or she retires. The other fund is planned to follow the owner through retirement and as such, is more aggressively invested. The bear market of recent history did not favor this investment option, but many funds have been making up their losses.
Target date funds are favored by governmental financial regulatory agencies and are seen as the optimum approach to helping facilitate workers saving for retirement. The majority of target date money is going into funds with the target date of 2020 or later. Savings in target date funds is predicted to double by 2020.
Extra Employee Finance Benefits
Some employers are responding to the multitude of financial challenges their employees are facing by adding financial counseling to their employee benefits programs. Sometimes called financial wellness programs, these benefits aim to help employees manage current expenses such as elder care and college costs for children while continuing to save for retirement.
Another movement aiming to accelerate saving for retirement is the debt eradication movement. Actual methods may vary, but behind them, all is a move to systematically reduce debt while scaling back on elective spending. With the eventuality of being debt free comes the ability to more aggressively save for retirement.
Out of Plan Considerations and Investment Options
Consideration of an out of plan move for one’s retirement strategy is also on the front burner for many facing retirements. Workers facing retirement age want to be assured that their savings will be a source of income that they can depend on. Many are considering taking their money out of a retirement plan and into alternate investment vehicles.
Before you take this step, do your homework to validate this is the best possible route for you. There are many types of financial investments, including mutual funds, wealth management, and annuities. Once you decide on an investment type, research which adviser works best for you. Look for public information on the company’s fees, return on investments, and service level. For example, Fisher Investments reviews are available online and details how long they’ve been in business, assets under management, number of clients, and links to their corporate site. If looking at mutual funds, Vanguard is the leader in mutual fund research and provides reviews of various funds.
Department of Labor Regulation
The Department of Labor’s ruling that lifetime income information is mandatory on all retirement plan participant’s statements is a way to encourage a mindset of making saving more earlier a priority. The intent of the lifetime income illustrations is to encourage workers to start saving earlier in life and put their contributions on auto-escalation. Because of this readily available information, many workers may defer retirement so that they can save an adequate amount of money first.
Whatever the method for saving for retirement, experts agree that more needs to be done to assure more Americans of a comfortable retirement. Taking a realistic look at your savings or lack thereof is a good first step to properly fund your retirement years.
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