Americans don’t do a great job preparing for retirement. As the Vox video above explains, that comes down to two basic reasons. First, the United States generally lacks the pension systems found in other wealthy nations that automatically channel money into retirement accounts, helping employees plan for the future. Second, without these automated plans, Americans are left to figure out how to save for retirement on their own. Because our high schools focus less on personal finance than in decades past, we struggle to navigate the array of retirement savings plans. We’re left to ask: What is an IRA, a Roth IRA, a 401(k) and a SEP IRA? How do these plans work? Which will work best for me? For many, it’s a daunting task to figure it all out, creating barriers to even getting started. Beyond that, many people, even if they can understand the financial landscape, find it hard to put money aside for the future. Short-term financial pressures (or careless budgeting) can overwhelm long-term plans, leaving retirement funds depleted down the road. Currently, the median retirement savings in the U.S. stands at $45,000 (per the expert in the video)–a figure well below the amount needed to retire comfortably. What’s worse, many Americans haven’t saved any money at all.
As the experts suggest above, it’s important to start early and put money aside for your retirement in a disciplined way. We will take a deeper dive into this subject in future posts. For now, it’s helpful to watch the video below from CBS News, which offers a primer on the different retirement accounts offered in the US, plus guidance from University of Chicago professor Harold Pollack. Here, he recommends taking advantage of tax-efficient 401(k)s offered by employers, and starting early in your career. Ideally, you want to save 20% of your pre-tax income, if you can. But less is certainly better than nothing. From there, he recommends investing that money in low-cost index funds and letting it compound over years. You can find more basic tips here. To go further, pick up a copy of Everything You Need To Know About Saving For Retirement.
