Saving for retirement can be overwhelming since it requires decades of consistent savings. One in four Americans didn’t contribute to their 401(k) or IRA in 2023, underscoring the dire financial situation many workers are presently in — and will be further down the line in retirement.
While present bias and focusing on enjoying the present factor into the issue, a large chunk of indifference towards retirement saving boils down to the fact that paychecks don’t stretch as far as they used to, primarily due to inflation and wage stagnation among middle-income workers.
Related: How average Americans can better plan for 401(k), retirement income
Many retirees wish they had planned for their golden years differently, and not saving aggressively enough is the top regret. However, many Americans are finding their current finances in dire straits and are making hardship withdrawals to get by.
The Bureau of Labor Statistics found that the 2022 median post-tax income for retirees was $47,620, while their annual expenses averaged $52,140, or $4,345 per month. Given that retirement expenses are outpacing retirement income, it is imperative that workers save as much as they can during their working years.
However, if between 34% and 66% of Americans live paycheck to paycheck, how can they adequately save for the future?
Top financial regrets among retirees
Hardship withdrawals are used to cover financial emergencies like medical bills or student loan payments before the designated age minimum of 59-and-a-half. While they may be necessary for some workers, penalties can rack up quickly — including a 10% tax on the withdrawal.
However, workers may be unaware of the intricacies of withdrawals: Only 2% were aware that you must be 59-and-a-half years old or older to withdraw from your 401(k) without incurring a penalty.
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Still, hardship withdrawals increased by 0.8% between 2022 and 2023, and over one-third (37%) of full-time workers have taken out a withdrawal or loan from their 401(k). This trend highlights the severity of the financial burden many Americans are under.
The main regrets among retirees relate to prioritizing retirement planning during their younger years. 68% of employees wish they had started investing sooner — even 80% of those who started investing in their thirties.
60% of those who made early withdrawals from their 401(k) regretted it, showing that hardship withdrawals will likely hurt your future retirement balance.
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Solutions to address the retirement savings gap
While it’s difficult to get by, let alone save, during periods of high living costs, certain precautions that workers can take can help minimize regrets during retirement years.
Financial education has proven to be the most effective tool in bridging wage and savings gaps; increasing access to resources on retirement planning can empower workers to make more informed financial decisions.
91% of workers with access to financial wellness resources are employed in their employer’s retirement plan, as opposed to 76% of workers without access to financial tools and resources.
Related: Dave Ramsey explains how your mortgage is key to early retirement
31% of workers with an employer-sponsored plan don’t know how much they have saved in their account, and 10% don’t know how to access that information. Employers can take a more active role in retirement planning by helping remove ambiguity from the process.
Since workers with more financial stress are found to be less productive, improving access to financial resources is a win-win for everyone.
Employers may also want to consider improving the retirement plan onboarding process to ensure employees aren’t discouraged by a complicated sign-up. Half of workers (44%) believe the account registration and onboarding for retirement accounts needs improvement, and 14% have abandoned the enrollment process altogether due to its complexity.
Auto-enrollment is the best way for employers to ensure that workers are immediately registered for sponsored retirement accounts and make consistent contributions. If employees view retirement contributions as an automatic deduction — such as social security and income tax withholding — it will help them adequately factor retirement savings into their budgets.
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