[ad_1]
After a gloomy period that predicted the wipeout of retirement benefits for many Americans, it was a relief to hear some mostly positive news.
Two new studies released this week (one by Vanguard and one by Fidelity Investments) show how U.S. workers with employer-sponsored retirement plans are saving consistently and predicting their future prospects. It shines a rosy light on how people imagine their retirement to be more luxurious than ever.
Let’s start with Vanguard. Vanguard has found that Americans are building up their retirement savings in record time. About 43% of workers increased the percentage of their paychecks they set aside in their 401(k) accounts last year, while 8% cut their contributions and stopped, according to a snapshot from the How America Saves 2024 report. Written by Vanguard, compared to 2% for people.
Breakdown: 15% of participants increased their pay deferral rate on their own, 28% of participants took advantage of their employer plan’s automatic annual increases to increase their pay deferral rate, and the company’s highest savings rate in 23 years. Pushed it to the highest rate. Analyzing savings behavior after retirement.
One big factor driving these savings rates is the growing number of employers who automatically enroll employees in workplace 401(k) plans and automatically increase contributions each year. Jeff Clark, director of defined contribution research at Vanguard, told Yahoo Finance.
In addition, there are some exciting discoveries, such as: Three-quarters of Americans are confident in retiring on their own terms, according to Fidelity’s new Girlfriend 2024 Retirement Planning survey.
read more: Planning for Retirement: A Step-by-Step Guide
“Market highs like this one help people feel more confident that they can retire when and how they want,” Sangeeta Moorjani, head of tax-exempt and retirement at Fidelity Investments, told Yahoo Finance. Told.
Last year, the S&P 500 Index (^GSPC) rose 26.3% and the Dow Jones Industrial Average (^DJI) rose 13.7%.
Impact of automatic registration
By the end of 2023, 59% of Vanguard retirement plans will have automatic enrollment, up from 56% in 2021 and nearly double the number a decade ago. Among plans with automatic enrollment, 6 out of 10 employees did not enroll in the plan, and the deferral rate was more than 4%.
The rewards are visible. According to Vanguard data, an employee who works for a company that offers automatic registration will save nearly 50% more than an employee who works for a company that has voluntary registration.
“The impact on employees’ retirement savings is encouraging,” Clark said.
Combined with the stock market recovery last year and in 2023, Vanguard’s average account balance increased by 19%. At the end of 2023, participants had an average account balance of $134,128 and a median balance of $35,286, an increase of 29% from the end of 2022.
Withdrawals by people in poverty reach record high
However, to keep it real, there were some signs of financial stress. In 2023, the highest percentage of Vanguard 401(k) holders had their accounts raided due to the financial crisis. Last year, nearly 4% of workers withdrew money early to protect against financial hardship, and the proportion of workers drawing down their savings for a loan increased by 12% compared to 2022.
Looting could be caused by rising medical costs and other living costs, from food to rent, or it could simply be an increase in account balances and permission to tap into savings.
But keep that in perspective, Clark said. “More than 96% of participants did not make a hardship withdrawal.”
Still, withdrawing money from your retirement fund doesn’t just deplete your account. You must pay income tax on previously received tax-free money.
You may also have to pay an additional 10% tax if you are not 59 years of age or older, unless you meet one of the IRS exceptions. These include certain medical expenses, qualified tuition payments, and up to $10,000 for first-time homebuyers.
The numbers reveal how many people turn their retirement accounts into emergency savings funds when unexpected expenses suddenly surface.
go out with the old one
Fidelity’s report highlights an interesting shift in the very concept of retirement.
The traditional retirement lifestyle of switching off from work and living a life of leisure is no longer very appealing to more than half of Gen Z and Millennials.
In fact, across generations, two-thirds of Americans look forward to continuing to work for pleasure after retirement, first working full-time, then part-time, and then completely. I would like to retire in stages.
“The rise of remote and flexible working options has certainly influenced the trending retirement concepts we see today, such as ‘phased retirement’ and ‘non-retirement,’” said Moorjani. Stated. “Now that people know they can work from anywhere, retirement no longer means the end of their working life.”
Almost all respondents (85%) want to retire while they are still healthy enough to work, with the average retirement age of 61 to 62 years old, but about 6 in 10 of those surveyed want to retire while still healthy enough to work. He said he planned to work at least part-time after he retired. According to Fidelity.
What could push them into retirement? Gen Z and Millennials cite becoming debt-free or achieving a career goal as key factors. Baby boomers say they will retire when they feel emotionally “ready.”
Indeed, nearly half of those surveyed still have deep-seated concerns about whether they will have enough money for retirement, including outliving their savings.
In fact, among the roughly one-fifth of people who retired and then stayed on, their reasons for returning to work were evenly split between financial reasons and a desire for emotional engagement.
“We’ve found that planning has the biggest impact on when you retire,” Moorjani says. “Our research shows that each generation is starting to plan for retirement seven to eight years earlier than the previous generation, which is contributing to increased confidence.”
Kelly Hannon is a senior columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 of her books, including “The World’s Best.”Taking Control Even Over 50: How to Succeed in the New World of Work.” and “You’re never too old to get rich.” Follow her on X @Kellyhannon.
Click here for the latest personal finance news to help you invest, pay off debt, buy a home, retire, and more.
Read the latest financial and business news from Yahoo Finance
[ad_2]
Source link
