5 Critical Findings About Saving for Retirement

By Markets Fool.com

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We all know we should be doing it, but when the numbers are tallied, Americans aren't very good when it comes to saving money. Whether it's the peril of trying to put money into a retirement account on a below-average income, an unexpected cost that depletes our checking and/or savings accounts, or our inability to properly budget for our cash flow, many Americans simply aren't on track to retire on their own terms.

America, the land of missed saving opportunities
Based on a study released two months ago by Financial Finesse that examined the retirement preparedness of Americans, just one-in-five proclaimed themselves to be on track. Although this is up from 2011 and 2012, it's still a disappointing total. Furthermore, three-quarters of those who claimed to not be prepared had not taken the first critical step of running a retirement projection to determine how much they'd need in retirement.

However, a recently released retirement survey from Vanguard entitled How America Saves 2014 details in depth who is and isn't saving within America. Here are what I believe to be the five most critical findings about saving for retirement to come out of Vanguard's report.

1. Income determines whether or not you participate
The first critical finding from Vanguard's study was that income really did determine whether or not someone contributed to their retirement plan.

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According to Vanguard's statistics, just under half (49%) of eligible employees who make $30,000 or less in income per year were actively participating in a retirement plan at their place of employment compared to 87% of employees that make $100,000 or more per year. Put simply, having more income handy gives upper-income individuals the perception that they can put more of their salary to work toward retirement, whereas the same can't be said for lower-income individuals.

2. Where you work, and how long you work there, matters
Building off of the first point, Vanguard's data shows that where someone works, as well as how long they work there, can play a big role in whether or not they participate in a work-sponsored retirement plan.

Just 53% of employees in the retail and wholesale industry participate in retirement plans, behind the transportation, utilities, and communications industries at 58%. On the other end of the spectrum, finance-based employees, as well as insurance and real estate employees, participated 92% of the time.

Tenure is also a big determinant of whether or not employees participate in a work-based retirement plan. More than three-quarters (77%) of individuals at their job for more than 10 years participated in a retirement plan compared to just half of individuals who were at their job for a year or less.

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3. Millennials are the worst savers
When it comes to age groups, Millennials are the least likely to opt-in to a work-based retirement plan, according to Vanguard. Specifically, just two in five of those under the age of 25 are likely to participate, while older Millennials aged 25-34 see their participation rate jump to about three in five. It certainly takes time to learn the true value of a dollar, and it would appear this is the biggest problem haunting Millennials' participation rate at the moment.

4. Making enrollment automatic boosts participation
One of the most interesting findings from Vanguard's study was that automatically enrolling employees into a retirement plan dramatically boosted participation as opposed to allowing employees to voluntarily participate. Employees can still opt-out of the automatic enrollment process, but most were more than happy to participate. The data shows that 87% of automatic enrollees participated compared to just 62% of voluntary enrollees.

5. Women participate in retirement plans more often than men
Lastly, a battle of the sexes revealed that women are more likely to opt-in to an employer-based retirement plan than men by a score of 72% to 65%. However, in the long run, men still wind up saving more money than women.

Why the head-scratching disparity? Vanguard notes that women tend to work about 12 years less than their male counterparts, and they tend to be less demanding on the negotiating front when it comes to their salary. This combination of lower wages or slower wage growth compounded with lost years of work allows men to have about a 50% higher retirement plan balance than women.

How you can get on the right retirement track
Clearly many people aren't where they need to be when it comes to retirement. Here are a few simple ways workers can reverse this trend and improve retirement plan participation.

The first step is simple: You need to determine how much you'll need in retirement. Understandably this is a fluid figure that's likely to change over time, but you can't reasonably save for retirement (or even have the proper motivation to begin saving) if you don't have a goal to work toward.

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Secondly, establish a monthly budget. I can't stress enough the importance of being able to save money if you don't first have a good grip on where your money is going in the first place. Once a firm plan is in place, you'll be in a better position to set aside money on a regular basis for your retirement.

Third, find out whether or not your employer offers a matching contribution for your retirement plan at work. Generally speaking, not contributing up to the point to which your employer will match your contribution is a (small-f) foolish move, as you're leaving what equates to free money on the table. This matching contribution can compound your gains in a big way over the long run.

Lastly, consider opening up an IRA once you've formulated a budget and begun saving money. Like a 401(k) from your employer, which defers your tax liability until you begin taking money out, an IRA can offer upfront tax advantages (Traditional IRA), or allow your money to grow completely tax-free over a lifetime (Roth IRA).

The article 5 Critical Findings About Saving for Retirement originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.