FINANCE
What is the average age for opening a 401(k) account?
Americans have been putting money away for retirement at a later age in the past as young people struggle in the US economy.
401(k)s have taken over traditional pensions as the primary means of saving for retirement in America. On average, 13.8% of a worker’s salary goes into their 401(k).
People are encouraged to start putting money into retirement savings as early as possible. This is because compound earnings means that money should grow much larger the longer it is saved due to interest rates. With the Fed setting these rates at 20-year highs, it is as good a time as any to put money away if you can afford it.
It is difficult to pin down an average age where peopel start paying in, but has been noted that people are putting money for retirement away later than their twenties.
Why are Americans saving for retirement later?
There are several factors that contribute to Americans saving for retirement later in life. Here are a few key reasons:
The covid-19 pandemic disrupted millions of people’s careers, some of which are only just getting back-on-track. This was coupled with 18 months of high unemployment, resulting in delayed retirement savings.
The cost of living has been increasing, particularly in areas such as housing, healthcare, and education. This has been especially hurftul for young students who leave university with tens of thosuands of dollars of debt, with the national total close to $2 trillion. Without this paid off, due to the horrific interest, many young people have to wait until later in their life before they are financially secure. These rising expenses make it challenging for individuals to allocate sufficient funds for retirement savings, forcing them to prioritise immediate financial needs over long-term savings.
Traditional pension plans, which provided a steady income stream during retirement, have become less common. Instead, many employers offer defined contribution plans like 401(k)s, placing the responsibility of retirement savings on the individual. This shift requires individuals to actively engage in retirement planning and contribute to their accounts, which may lead to delays in starting their savings.
Many Americans face significant financial obligations such as credit card debt and mortgages, both of which have been hit with rising interest rates. This makes the payments of interest more expensive. These financial burdens can limit the amount of money available for retirement savings and may necessitate a focus on debt repayment before allocating funds to retirement accounts.