A new study by New York Life found three important things about pre-retirees between the ages of 50 and 62 with household income of at least $80,000, which should serve as a wake-up call to millennials and younger generations. First, the study found that pre-retirees wish they had started saving at a much younger age than they did. Second, pre-retirees wish that they had put their savings on auto-pilot. Third, pre-retirees have a high level of confidence in the performance of their own automated savings vehicles. Chris Blunt, president of New York Life’s Investments Group, stressed how important these findings are because “pre-retirees sit in an important vantage point - they are in a position to share what has worked well for them as they inch toward retirement.” Everyone in their 20s, 30s, and 40s should take notice of what pre-retirees are saying: put your savings plan on auto-pilot as early as possible.
Don’t risk your golden years. This book will help you plan around roadblocks that can derail your retirement.
If you want to generate wealth over time and secure your own financial independence, you need to start saving at an early age. However, the pre-retirees surveyed noted that on average they only began to engage in a serious savings plan at the age of 34. As such, they demonstrated a high level of regret for not starting serious savings at a younger age as roughly 7 out of 10 respondents said they regret waiting so long before saving. In fact, the magic age the respondents articulated for when they wished they had started saving was age 26, a full eight years earlier than they actually started saving.
If you don’t start saving at an early age, you will miss a lot of investment opportunity. The longer you can give your investments to grow; the better off you will be in the long run. In fact, the solution is simple – save early, save often. However, as Chris Blunt notes, “just because the solution might be simple, save early, it’s not always easy as life and unexpected expenses get in the way.”
The study also pointed to some best practices to help encourage sufficient savings at younger ages. More than half of the pre-retirees surveyed noted that they had difficulty saving outside of their automatic savings vehicles. For those individuals with children living at home, 58 percent wished they had more automatic savings in place. Blunt noted that having children and other significant family building events “can be a real eye opener for planning. When you have dependents or a spouse, it makes the conversations real about saving for retirement, having the right amount of insurance, and planning for college education costs.” Young families often find it difficult to save as other life events get in the way. As such, automated savings accounts can extremely helpful, allowing you to save money for your future without having to direct your focus away from other life events.
After noting a strong desire for more automatic savings opportunities, it was not a total surprise when the respondents also noted they had more confidence in their automatic savings vehicles than in their other forms of savings. Roughly 68 percent of male pre-retirees and 59 percent of women pre-retirees reported more confidence with automatic savings than their other forms of savings. Furthermore, among automatic savings vehicles, pre-retirees demonstrated very high levels of confidence with nearly 93 percent confident in their 401(k)s, 79 percent confident with their mortgage, and 78 percent confident with their permanent life insurance. Chris Blunt added that “I often ask clients to consider this question: “Will you at 70 like the financial decisions you made at 40?” While it is hard to know exactly, this survey gives us part of the answer: be especially mindful of the value of automatic savings vehicles; your future self will be happy you did.”
Don’t risk your golden years. This book will help you plan around roadblocks that can derail your retirement.
Saving for retirement is like paying your future self today. It is a lot easier to save for the future if you do not get accustomed to the income before you have a chance to save it. As such, using automatic savings vehicles like a 401(k) helps you take money out of your paycheck and invest it before you can spend it on something else. Take advantage of your 401(k) by deferring your salary into the plan. Consider increasing your salary deferral overtime to increase your savings. In many cases your employer will make a matching contribution on a portion of your salary deferral. Make sure you are taking full advantage of any employer contributions by deferring enough money to get the full match. Saving in a 401(k) provides excellent tax advantages and can help automate your retirement savings.
Other financial vehicles like a whole life insurance policy can help you save for the future without putting much thought into it. Whole life insurance often requires monthly or annual premiums to keep the policy in force. A part of the premium goes to help provide insurance in the event of the insured’s death and another portion of the premium goes into a tax advantaged savings account that has a guaranteed growth rate. Overtime you could accumulate a lot of cash value in the whole life policy that can be accessed at any age and for any reason without taxes. This cash value can be a useful way to help fund your retirement needs or your children’s college education expenses.
Paying your mortgage can also function as an effective way to automate your savings. Overall, purchasing a house is not always a good investment as home prices have historically risen along with inflation and have provided no other real returns. However, this does not mean purchasing a home is a bad financial decision. On average, those people who purchase a home end up with more wealth over time than those who do not own their own home. This is in part due to the fact that paying your mortgage helps you automate your savings. Typically, each mortgage payment is part interest and part principal. These principal payments allow you to build up your home equity over time and increase your net worth.
If you want financial independence in the future, start saving at an early age and automate your savings as much as possible. While whole life insurance, your employer sponsored retirement plan, and your home mortgage can all be good ways to automate your savings they are not the only options. Many companies will also let you set up automatic deposits from your checking account into a Roth IRA, Traditional IRA, or other investment account. With a lot of options out there to help you automate your savings, make sure it fits your unique situation. Remember, it’s never too early to have a good plan in place, so start saving now!
