401(k)s have taken over traditional pensions as the primary means of saving for retirement in America. On average, 13.8% of a worker’s salary goes into their 401(k).
People are encouraged to start putting money into retirement savings as early as possible. This is because compound earnings means that money should grow much larger the longer it is saved due to interest rates. With the Fed setting these rates at 20-year highs, it is as good a time as any to put money away if you can afford it.
It is difficult to pin down an average age where peopel start paying in, but has been noted that people are putting money for retirement away later than their twenties.
Why are Americans saving for retirement later?
There are several factors that contribute to Americans saving for retirement later in life. Here are a few key reasons:
The covid-19 pandemic disrupted millions of people’s careers, some of which are only just getting back-on-track. This was coupled with 18 months of high unemployment, resulting in delayed retirement savings.
The cost of living has been increasing, particularly in areas such as housing, healthcare, and education. This has been especially hurftul for young students who leave university with tens of thosuands of dollars of debt, with the national total close to $2 trillion. Without this paid off, due to the horrific interest, many young people have to wait until later in their life before they are financially secure. These rising expenses make it challenging for individuals to allocate sufficient funds for retirement savings, forcing them to prioritise immediate financial needs over long-term savings.
