"Solving the retirement savings crisis has to be a team effort," said
Among the recommendations for key stakeholders highlighted in The Savings Crisis of Working Americans: The Retirement Industry Call to Action are:
- The Retirement Industry – Defined contribution (DC) providers and asset managers must look to develop innovative products and services that enhance defined contribution plans and platforms to encourage greater participation. The industry should also apply lessons learned from the DC plan design to improve the growth of Individual Retirement Accounts (IRAs) – particularly for employees without access to DC plans.
- Employers/Plan Sponsors – Companies offering a DC plan should commit to improving the quality of their communications and educational initiatives and consider offering access to professional guidance designed to help employees better prepare for retirement. Smaller companies that do not offer a DC plan for their employees should consider taking advantage of solutions developed by payroll service providers and other retirement plan industry participants.
Financial Advisors/Consultants – In addition to over-communicating the importance of saving more to better prepare for retirement, financial intermediaries must serve as an advocate for their clients by working closely with plan sponsors to promote transparency and enhance their knowledge and abilities.
- The Federal Government – To provide the ability for all Americans to save at work, the government should strive to create solutions that incentivize all employers – regardless of their size – to offer retirement plans.
- Working Americans – Save more.To start, consider a simple saving strategy characterized by the football term First & Ten. First, get started by enrolling in a dedicated retirement savings account such as a 401(k) offered by your employer; or open an IRA. With the account in place, try to save at least 10 percent of your income in this retirement savings vehicle – a savings rate that would be nearly double the national average.
First & Ten & DC
The benefits of implementing a First & Ten strategy in a defined contribution plan offered by an employer are significant. For example, if a 25-year-old worker with no retirement savings and an annual salary of
However, if he saves 10 percent of his earnings annually in a taxable brokerage account with a hypothetical 5 percent annual after-tax return (equivalent to 6.6 percent pre-tax), his savings would total just
"The power of employer matching contributions and tax-deferred compounding can't be emphasized enough," said
He concluded, "Employers must be encouraged to provide an opportunity for workers to save at work through a defined contribution plan or simple IRA because saving at work works. To that end, it's imperative that
To download a copy of The Savings Crisis of Working Americans: The Retirement Industry Call to Action please click here.
Diversified is a leading provider of customized retirement plan administration, participant communication and open architecture investment solutions for mid- to large-sized organizations. The company's expertise covers the entire spectrum of defined benefit and defined contribution plans, including: 401(k) and 403(b) (Traditional and Roth); 457; non-qualified deferred compensation; profit sharing; money purchase; cash balance and Taft-Hartley plans; and rollover and Roth IRA. Diversified helps more than two million participants save and invest wisely for and throughout retirement. To learn more, visit www.divinvest.com.
* Assuming annual salary increases of 3 percent, an employer matching contribution of 50 percent up to 6 percent of salary, and a hypothetical 6.6 percent annual pre-tax rate of return.
Important Risk Information
The views expressed are those of the
The First & Ten concept is simply a strategy for increasing a worker's rate of savings. Retirement savings accumulations depend on various factors in addition to savings rate, including the length of time over which savings and investment takes place and the investment rate of return during such period. There is no guarantee or assurance that following the First & Ten concept will allow an investor to accumulate retirement savings sufficient to meet the investor's retirement income needs.
For purposes of the above comparison, it has been assumed the taxable account will generate a combination of long-term capital gains and qualified dividends taxable at a maximum rate of 15% under current federal income tax law, and short term capital gains and interest taxable as ordinary income, resulting in an annual blended federal tax rate of 25%. Changes in tax rates and tax treatment of investment earnings may impact the comparative results shown. The comparison assumes that no distributions are made from the tax-deferred account during or at the end of the 42-year period, and that taxes applicable to the taxable account are paid out of such account each year. Withdrawals from a tax-deferred account are taxable as ordinary income in the year made, and early withdrawals prior to age 59 ½ generally are subject to a 10% additional federal tax. The impact of taxes on tax-deferred withdrawals is not reflected in the comparison. If reflected, such impact would make the accumulation of assets in the tax-deferred account relative to the accumulation of assets in the taxable account look less favorable. The rate of return used in the comparison is not intended to be representative of any investment product. An actual investment may include fee, charges and other expenses that would affect the investment's return.
Scenario calculations are based on Diversified's Retirement Planning and Retirement Savings Calculators using the following criteria:
Total amount saved in taxable brokerage account
(Retirement Planning Calculator)
Current Age: 25
Age at retirement: 67
Current retirement savings: 0
Rate of return before retirement: 5%
Rate of return during retirement: 3%
Percent of income to contribute: 5% and 10%
Expected salary increase: 3%
Years of retirement income: 20
Percentage of income in retirement: 80%
Expected rate of inflation: 3.1%
Total Amount Saved in DC plan
(Retirement Savings Calculator)
Percent to contribute: 10%
Current age: 25
Age at retirement: 67
Current retirement savings plan balance: 0
Annual rate of return: 6.6%
Expected annual salary increase: 3%
Employer match: 50%
Employer maximum: 6%
Hypothetical results are inherently limited and should not be relied upon as indicators of the future performance of any
Investors should not use this information as the sole basis for investment decisions and different hypothetical scenarios will provide different results.
Past performance is no guarantee of future results. All investments involve risk, including possible loss of principal. Asset allocation does not guarantee a profit or protect against a loss.
Diversified is not affiliated with
|Source:||PR Newswire Association LLC|