In general, Americans are not very prepared for retirement.
“Although the cost of retirement is significantly increasing, far too few workers are saving,” said Wyoming’s U.S. Sen. Mike Enzi in a statement. “Retirement security is not talked about often enough.”
Enzi, a Republican, has sponsored a successful resolution for several years to recognize National Retirement Security Week, which ends Saturday, to draw attention to the issue and highlight retirement savings options.
The government offers several tax-advantaged options for retirement savings, including 401(k) accounts offered through employers and Individual Retirement Accounts — known as IRAs — that can help reduce taxes on savings set aside for retirement while investing them in the stock market.
University of Wyoming personal finance specialist Cole Ehmke said it is essential that people place retirement savings in investment accounts because otherwise inflation will mean they end up losing money.
But by placing savings into retirement accounts and investing them in simple and inexpensive index funds, which are meant to simply track the overall growth of the stock market, the savings will compound and help ensure people have enough money to retire.
“Retirement is one of those things where it sneaks up on you,” Ehmke said. “Open a retirement account and start saving now. Let that compounding work for you your entire working life.”
Ehmke said that while priorities for retirement savings change depending on a person’s age, the following order of goals is appropriate for most people:
- Cover basic costs like food and shelter
- Pay down any high-interest debt like credit card debt
- Create an emergency fund that can cover three to six months of living expenses
- Determine how much you need to save each month toward retirement and start doing so
- Set aside money for mid-term financial goals like a down payment on a car or house
Ehmke said there are numerous retirement calculators online that people can use to estimate the total amount they will need when they stop working and how much it is necessary to save each month based on their age and other factors.
He said that people often find enough money to set aside for retirement by eliminating unnecessary spending but acknowledged that the country’s education system tends to do a poor job of teaching people financial literacy.
“We really put our consumers here in the U.S. in a tight position because we don’t require any type of financial management class in high school, colleges don’t require it — UW is an example of that,” Ehmke said.
He also noted that stagnating wages over the last several decades and the proliferation of poor-paying jobs has made it more difficult for Americans to cover the basic costs of living, much less setting aside money for later in life.
“There’s a tremendous amount of jobs out there that are not careers, they don’t provide anything good in the ways of benefits or protections,” Ehmke said. “Employees aren’t in a great position.”
Ehmke added that Wyoming’s significant gender pay gap significantly disadvantaged women for several reasons. In addition to earning less money in the workforce, they often spend fewer years working and usually live longer than men, meaning they need more retirement savings.
But he said that despite the obstacles, individuals can help by educating themselves about financial literacy in general and retirement savings options in particular. He recommended publications like Kiplinger and suggested people seek out resources online.
As for Ehmke’s basic advice?
“It’s a matter of priorities,” he said. “One of the big priorities is just saying no to things that you don’t need. Trimming down your lifestyle, getting rid of those extra things.”