By: Ron Carson
In the 2021 Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI) and Greenwald Research, 50% of workers and 72% of retirees say the COVID-19 pandemic has not changed their confidence in achieving a secure retirement. Still, 33% of workers and 25% of retirees say it’s made them somewhat or significantly less confident they will have enough to live comfortably throughout retirement. Among workers who feel less confident, 3 in 10 say the pandemic has negatively impacted their ability to save for retirement, due to reduced hours, income, or job changes.
Among the 40% of workers in the EBRI study who reported a job loss or other reduction in income in the past year, 60% say this has had a negative impact on their ability to save for retirement. As a result, these workers are less likely to feel confident that they are doing a good job preparing for retirement or that they will have enough to last their entire life. In fact, 3 out of 4 workers who experienced income loss reported feeling stressed about preparing for retirement, compared with just half who haven’t had the same experience.
Workplace retirement plans play a critical role in promoting retirement confidence
Among those still working, 90% expect Social Security to pay a portion of their expenses in retirement and 83% expect to rely on employer retirement plan savings, such as 401(k) or 403(b) plans, as a source of income in retirement, compared with just 46% of retirees.
As fewer Americans have access to traditional pension plans through their employers, more will rely on the combination of Social Security benefits, personal savings, and workplace retirement savings to provide the income they will need for a lifetime in retirement. Contributing the maximum amount to the plans you’re eligible to participate in is one of the most effective ways to boost retirement savings, especially if your employer also offers matching contributions.
IRS announces 2022 retirement plan contribution limits
In November, the IRS announced an increase in retirement plan contribution limits for 2022. Participants in 401(k), 403(b) and most 457 plan participants may contribute up to $20,500, an increase of $1,000 over the 2021 limit. While catch-up contribution amounts remain unchanged, those age 50 and over can contribute an additional $6,500 for a maximum contribution of $27,000 for the year. (Limits on contributions to traditional and Roth IRAs remains unchanged for 2022, at $6,000. Those age 50 and over can contribute an additional $1,000 in catch-up contributions, for a total of $7,000 in 2022.)
Your investment strategy is key
While how much you save is critical to help ensure your income lasts as long as your need it in retirement, how you invest those plan contributions is also very important. For example, a strategy that’s too conservative may not achieve the growth you need. Instead of eliminating risk, you’re simply shifting it to the possibility that once you enter retirement, may not have income you need to support all of your goals for a period of 20 years or more. Keep in mind, once you do retire, you don’t need the full balance of your portfolio the day you retire. You’ll draw down on your portfolio over time to support your income needs. So you want it to continue to generate income over time to help support your lifestyle for decades to come.