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A recent study by BlackRock and Human Interest reveals an eye-catching gap in retirement savings between workers with access to employer-sponsored retirement plans and those without. The data shows that median-income employees lacking workplace retirement benefits saved one-eighth as much as those with employer-sponsored retirement plans. And by the time they retire, these workers could have almost $625,000 less than their counterparts with employer retirement programs. The research also showed that building up emergency savings could drive employees without workplace retirement plans to save more for retirement.
If you don’t have access to a workplace retirement plan, a financial advisor can walk you through different options to reach your retirement goals.
Research from asset manager BlackRock and 401(k) provider Human Interest examined savings rates and projected nest eggs for U.S. workers earning median annual incomes of $60,000. According to their findings, those with access to automated, employer-based retirement savings tools contributed an average of 7.4% of their salaries. Comparatively, workers without such benefits saved just 0.9% annually.
This eight-fold gap in savings rates creates a similarly wide disparity in long-term retirement fund accumulation. The study projects that at age 65, the average worker using their employer’s retirement plan would have accrued $710,900 for retirement. Their counterpart without this benefit would have only $86,500, which is $624,400 less.
Note that this analysis does not account for the effects of potential employer matches. In many employer-sponsored plans, employers will match employee contributions up to a specified percentage of the employee’s salary. This benefit can significantly increase the amount of money going into a retirement savings account.
A senior woman reviewing her retirement savings.
Saving less than 1% annually makes it difficult for most workers to accumulate sufficient retirement savings. According to widely employed guidelines, the average American needs approximately 75% of preretirement income after leaving the workforce. With only $86,500 in retirement accounts, workers without employment-based savings plans will likely face significant financial shortfalls in their later years.
Deficits of that magnitude can lead to all sorts of undesirable outcomes, including inadequate income, diminished quality of life and over-reliance on government programs in retirement. Accessing workplace retirement accounts makes it far easier for employees to save consistently so they can maintain their standard of living after leaving full-time employment. Get matched with a financial advisor if you need help building a retirement plan.
The news about the value of savings tools for building nest eggs indicates that businesses can help their employees by offering company sponsored ways to save. It also suggests some specific recommendations for anyone who wants to enjoy a secure retirement.
To start with, talk to your employer’s HR department to learn about any 401(k) or other retirement plans available and how to enroll. As this research shows, maximizing these workplace benefits can significantly boost your savings.
Even if you lack access to workplace retirement benefits, you can take steps to save independently. Anyone can open an IRA and have contributions automatically deducted from their paycheck while enjoying current tax benefits. Even small amounts will compound over time. Look into other tax-advantaged savings vehicles like health savings accounts as well.
In addition to utilizing tax-deferred savings plans, try to build up some emergency cash reserves. BlackRock found that workers with at least $1,000 in emergency savings contributed 70% more to retirement accounts and were far less likely to tap their retirement funds prematurely.
To further turbocharge your savings program, review your budget and look for areas to trim spending. Allocate those savings to retirement accounts. And incrementally increase contributions when possible, such as after a raise. A financial advisor can help you build an appropriate retirement plan based on your goals and circumstances.
A woman calculating how much she has saved for retirement.
The BlackRock and Human Interest research indicates that access to retirement savings platforms at work enables average employees to save significantly more for their later years. Without such tools, amassing sufficient funds for a comfortable retirement becomes very difficult. This research stresses the importance of taking full advantage of any workplace retirement plans available to you. It also reveals the large positive impact that creating and contributing to an emergency savings account can have on retirement savings.
Consider working with a financial advisor to review your current retirement savings and create a customized strategy to help you meet your goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Use SmartAsset’s online Retirement Calculator to estimate how much you need to save for retirement and develop a plan to help reach your target number. Consistently contributing to retirement accounts is key.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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