Here’s your biggest retirement regret—and how to avoid it

Saving for retirement can be overwhelming because it requires decades of consistent savings. One in four Americans didn’t contribute to a 401(k) or IRA in 2023, underscoring the dire financial situation many workers are in today — and will be further from retirement.

Although the present prejudice and focus on the enjoyment of the present factor in this issue, much of the indifference towards saving for retirement comes down to the fact that wages are not stretching as far as they used to, mainly due to inflation and wage stagnation in among the media. income workers.

Related: How Ordinary Americans Can Better Plan for 401(k), Retirement Income

Many retirees wish they had planned for their golden years differently, and their biggest regret is not saving aggressively enough. However, many Americans are finding their current finances struggling and making difficult withdrawals to get by.

The Bureau of Labor Statistics found that the median after-tax income for retirees in 2022 was $47,620, while their annual expenses averaged $52,140, ​​or $4,345 per month. With retirement expenses exceeding retirement income, it is imperative that workers save as much as they can during their working years.

However, if 34% to 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, such as medical bills or student loan payments, before the designated minimum age of 59 1/2. While they may be necessary for some workers, the penalties can add up quickly – including a 10% withdrawal fee.

However, workers may not be aware of the complexity of withdrawals: Only 2% knew you had to be 59 1/2 or older to withdraw from your 401(k) without incurring a penalty.

More on retirement:

• The average American faces a major retirement 401(k) dilemma.
• How your mortgage is the key to early retirement
• A few simple tasks can help you thrive in retirement

However, hardship withdrawals increased by 0.8% between 2022 and 2023, and more than a third (37%) of full-time workers took out a 401(k) withdrawal or loan. This trend highlights the severity of the financial burden many Americans find themselves under.

Retirees’ top regrets relate to prioritizing retirement planning in their younger years. 68% of employees would like to start investing earlier – even 80% of those who started investing in their thirties.

60% of those who took early 401(k) withdrawals regretted it, showing that hardship withdrawals will likely hurt your future retirement balance.

A retired couple is seen celebrating their retirement finances.

ShutterStock

Solutions to address the retirement savings gap

While it’s difficult to get by, let alone save, during times of high living costs, certain precautions workers can take can help minimize regrets in their retirement years.

Financial education has proven to be the most effective tool in eliminating wage and savings gaps; Increasing access to retirement planning resources can empower workers to make more informed financial decisions.

91% of workers with access to financial welfare 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 The 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 play a more active role in retirement planning, helping to remove ambiguity from the process.

Because workers with more financial stress turn out 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 enrollment process to ensure employees are not deterred by complicated enrollment. Half of workers (44%) believe registration and account integration for retirement accounts needs improvement, and 14% have abandoned the signup process entirely because of its complexity.

Automatic enrollment is the best way for employers to ensure that workers are immediately enrolled in sponsored retirement accounts and making consistent contributions. If employees see retirement contributions as an automatic deduction—like Social Security and income tax withholding—it will help them properly factor retirement savings into their budgets.

Related: Veteran fund manager sees world of pain coming for stocks