Many Americans know it’s important to begin saving early for retirement, but a new report from the Milken Institute highlights just how early they should start. According to the report, Americans should start saving no later than 25 years old, saving $100 a week from then on to generate savings of more than $1.1 million by age 65.
The study found that around 25% of Americans lack retirement savings, and only 24% of workers feel “very confident that they’ll be able to retire comfortably.” Additionally, around half of Americans don’t have access to an employer-sponsored retirement plan.
The report identified several obstacles that prevent Americans from saving for retirement. These include steep healthcare costs, social inequality, crushing housing costs, psychological biases, and student debt.
Psychological biases, such as a “temporal bias,” can prevent Americans from identifying with their future selves and taking actions to benefit their future financial security. Student debt also poses a significant burden and often delays individuals from starting a retirement plan.
To overcome these barriers, the report suggests several strategies at both the individual and systemic levels. At an individual level, individuals should counter temporal bias by thinking of their future selves as separate entities that need assistance. Additionally, the report recommends visualization techniques and emphasizes the power of compound interest in motivating individuals to save.
Financial education also plays a crucial role in helping Americans navigate their finances and retirement planning. The report suggests taking advantage of the various financial education resources available, including those offered by banks and financial services firms.
On a broader level, financial tech products, such as robo-advisers and AI-assisted visualization tools, offer Americans further opportunities to save for retirement. These technologies provide real-time financial advice, assist in creating retirement plans, and help individuals visualize their future.
The report also expresses support for government-facilitated retirement plans. It highlights the Secure 2.0 Act, which requires businesses to auto-enroll employees into retirement plans unless they opt out, and state-facilitated retirement plans that provide access to individuals who don’t have employer-sponsored plans.
By addressing these challenges and implementing the recommended strategies, Americans may enhance their retirement savings and financial security. It is crucial to start saving early and take advantage of various resources and tools available to achieve a comfortable retirement.
Dylan Croll is a reporter and researcher at Yahoo Finance. Follow him on Twitter at @CrollonPatrol.
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