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Thirty-two percent of working-age Americans – about 58 million people – have no retirement savings, according to a recent analysis by The Penny Hoarder. Younger workers had the lowest savings rate, with nearly half of working-age adults in their 20s having no savings.
The Penny Hoarder's analysis is based on data from the Federal Reserve's Survey of Household Economics and Decisionmaking and counts retirement savings as a pension, employer-sponsored defined contribution plan, an IRA, or another type of retirement savings account.
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According to the data, confidence in retirement finances steadily increases with age. Only 12% of the youngest respondents said they believe they are on track for retirement, while nearly 57% of those 70 years and older said they are on track. The analysis acknowledges that many people miss out on the power of compounding that comes with saving as early as possible because their paychecks only stretch so far when they are young.
Employers can help employees build retirement savings in a couple of important ways, beginning with paying workers enough to keep up with rising living costs, said Robin Hartill, CFP, author of The Penny Hoarder's "Dear Penny" personal advice column. Beyond that, plan design also is important.
Related: The average retiree has $171K saved for retirement (less than 1/3 of what they need)
"Matching 401(k) contributions is probably the most powerful way employers can incentivize retirement savings," said Hartill. "Workers are stretching their paychecks further than ever, and saving for retirement may not be a priority. But if you match 50 cents on the dollar, your employee is getting an automatic 50% return before a penny of their money is even invested. That's free money that an employee probably won't want to pass up."
Auto-enrollment with an opt-out feature also is extraordinarily effective, said Hartill. "A Vanguard study found that participation rates for new hires tripled when companies made automatic enrollment the default instead of making enrollment voluntary."
The Secure Act 2.0, which passed in late 2022, has several provisions that could help companies bolster retirement savings, said Hartill. Beginning in 2024, employers will be able to 'match' student loan payments with retirement account contributions.
"Adopting plan provisions to allow for matching student loan payments will be a welcome change," noted Hartill. "Many workers forgo their employer's match because they're overwhelmed by student debt."
Finally, matching HSA contributions can help employees save for retirement, she said. "Of course, that money exists first and foremost for health care, but unused money gets rolled over from year to year and belongs to the employee forever. Once they're 65, they can withdraw HSA money for any reason without penalty, though they will owe income taxes on distributions. They can also use that money to pay for health care costs, including Medicare premiums, in retirement."
Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM's Retirement Advisor magazine and LifeHealthPro online channel.
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