Retirement savings face obstacles in 2012

Last year wasn't a great time for the stock market or 401(k) retirement savings plans. The stock market ended at about the same point it started at, which means that investments in 401(k) savings accounts mostly only grew by the saver's own contributions and by the matches made by employers.

Unfortunately, this also meant that workers didn't get much closer to the saving levels needed to meet their retirement needs.

Still falling short

Recent data suggests that many Americans still aren't saving nearly enough for their retirement. A study by 401k.org found that people are saving between 5.5 and 7 percent on average. Most financial advisors recommend saving at least 12 to 15 percent if you want to maintain your standard of living in retirement.

Employers, who have largely abandoned pension plans in recent years in favor of workplace retirement plans, are also worried about this shortfall. Even as Reuters reports that about 72 million Americans are enrolled in 401(k) retirement accounts and have $6.6 trillion tied up in them, a recent study by Aon Hewitt found that only 4 percent of U.S. employers are confident their workers will retire with adequate savings. That's down dramatically from the 30 percent who were very confident in 2011.

Another survey by the Society for Human Resource Management reveals why these statistics may concern employers. The study found that 22 percent of the nation's HR professionals feel their employees' financial concerns are having a "large impact" on their work performance.

Still, a lack of growth is better than the major declines many savers experienced when the housing market and stock market dropped precipitously in 2008. And in spite of these mixed results, many with 401(k) retirement savings accounts remain committed to those investments, according to a recent study by the Investment Company Institute.

ICI found that fewer people suspended 401(k) contributions in 2011 than in 2009 and 2010, and that the percentage of people with favorable impressions of their 401(k)s crept up from 63 percent in 2009 to 65 percent in 2011.

Searching for remedies

But according to the Hewitt study, some employers are taking some steps to increase retirement investments, including:

  • Communicating better. More than half of employers said they will encourage workers to take more responsibility for retirement saving this year.
  • Automatic enrollment for new employees. About 55 percent of employers with 401(k) savings accounts automatically enroll their employees, and a third of those surveyed said they will add this feature in 2012.
  • Automatic contribution escalation. Many companies say they will set the default savings rate higher than the current 3 percent many use and automatically increase the savings rate unless an employee requests that they don't.

While these new steps by employers could improve the retirement landscape for their workers, it is vital that the savers themselves also take action to ensure the security of their retirement.

Americans aim to boost savings

Americans didn't put enough money away in our savings accounts last year. But what else is new?

Well, one thing that's new is that it seems like many have come around to the realization that they can no longer continue making their savings accounts balances an afterthought.

A study by Principal Financial Group recently found that nearly one in five said their biggest mistake in 2011 was not putting enough away in savings accounts, money market accounts or a certificate of deposit. As a result, more than 25 percent have made saving more and paying off our credit cards our top financial priority for the coming year.

That's a good thing, because the nation's ongoing financial worries -- including concerns about higher taxes, shrinking Social Security and high unemployment -- is taking a toll on those over the age of 50. More than half are feeling higher stress levels because of market volatility and the threat of a double-dip recession.

For those feeling anxious, here's what to do about it:

  • Save more. Our nation's 3.5 percent savings rate is nowhere near enough, so Americans are going to be very specific about their goals for the coming year. It's easy to stray from a plan to simply "save more," but what if the plan is to save, specifically, $2,500 by the end of 2012? That's doable and measurable -- and more likely to happen than some vague aspiration.
  • Pay yourself first. That's right; save before you spend, rather than after.
  • Don't make risky investments in an effort to make up for an inadequate savings rate. Investors probably can't get the high asset growth rates they enjoyed in the 1990s anymore, so they you need to make sure your investments are safely diversified in things like CDs, money market accounts, savings accounts and other investments.
  • Don't count on Social Security. You should expect it -- you invested in it and you have it coming -- but don't expect it to cover all of your retirement expenses. It was always meant to supplement savings anyway.
  • Don't resign yourself to working until you're 80. As the Atlantic recently pointed out, employers these days are not keeping on older workers when younger, more flexible workers are available at half the price.

But perhaps most importantly, you should strive to be happier. Why? Because happy people save more money. They are also less likely to have debts, and because they are looking forward to retirement, they are more likely to save for it.

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