The fact that today we are living longer and spending more years in retirement makes preparing for retirement more important than ever. The expanded life span also has many worried about being able to save enough money to last them throughout their golden years.
A recent survey by TIAA-CREF found that nearly half of Americans (46%) are concerned about running out of money in retirement, and 55% are counting on their retirement savings to last 15 year or more. But when it comes to planning, many are choosing to bury their head in the sand.
“People may be missing out on options that could help ensure they will achieve their goals, or they could be choosing the wrong options for their particular situation,” said Teresa Hassara, executive vice president of TIAA-CREF's Institutional Business at TIAA-CREF. “Advice and education can make an enormous difference in helping people ensure that their strategy and mix of investments will fulfill their expectations for retirement.”
Dan Keady, CFP and senior director of financial planning at TIAA-CREF, discussed these additional findings from the survey and offered the following advice:
Boomer: According to the survey, what’s keeping people from making the most of their tax advantage savings?
Keady: With multiple goals competing for Americans’ income, many individuals need help taking a balanced and long-term perspective to their savings. According to the most recent IRA Survey by TIAA-CREF, only 18% of Americans currently contribute to an IRA. Another 14% own an IRA, but are not currently contributing.
Lack of understanding about IRAs may help explain why some Americans don’t consider contributing to one a priority. Among survey respondents, 42% said both that they are not currently contributing to an IRA and that they would not consider one as part of their retirement strategy. Of this group, 39% said they don’t know enough about IRAs to consider one – up from 29% in TIAA-CREF’s 2014 IRA survey.
There are a few other reasons people are not contributing to IRAs:
•The more education a person has, the greater the likelihood they contribute to an IRA: 28% of college graduates, versus 16% of those with some college education and 12% of high school graduates.
•While one quarter of those aged 35 – 55 contribute to an IRA, only 13% of those aged 18 – 34 do. Surprisingly, the number declines sharply at the older ages too, with only 17% of those aged 55 – 65 contributing to an IRA.
•81% of Americans with an income of $100,000 or more demonstrate an understanding of an IRA, compared to just 42% with an income of $35,000.
Boomer: How familiar are Americans with investment options in their retirement plans?
Keady: According to the TIAA-CREF Investment Options Survey, nearly 40% of Americans say they are not familiar with the investment options in their retirement plan—an increase from 33% in 2014. Alarmingly, despite the number of people who are not familiar with the investment options offered in their plans, 85% are comfortable with the choices they have made.
Boomer: You say target-date funds might be a good option for those who aren’t well educated on financial planning for retirement. How so?
Keady: You may be one of the 39% of Americans who don’t know what their retirement plan investment options are – or, you may be one of the 39% who feel there are either too few or too many choices.
To simplify the decision, you may want to consider investing in a target-date fund. These funds offer a simple, single investment option that lets you save in a fund that’s tailored to your planned retirement date.
As you approach retirement, the fund’s asset mix is adjusted to help ensure that you are appropriately diversified at that point in time.
It’s important that a portion of your target-date fund stays invested in equity investments both as you near retirement and stop working, so that your savings can help carry you to and through retirement.