New data indicates Americans are intensifying their focus on retirement planning. A Vanguard survey revealed that 4 in 10 individuals are increasing their retirement contributions compared to the previous year, resulting in a 19% surge in average account balances. Complementing this trend, Fidelity data found that three-quarters of Americans express confidence in their ability to retire on their own terms.
Yahoo Finance’s Kerry Hannon breaks down the details.
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Editor’s note: This article was written by Angel Smith
Video Transcript
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JARED BLIKRE: Two new studies show Americans are striking a more optimistic tone when thinking about retirement. Yahoo Finance’s Kerry Hannon here with the details. Kerry, great to see you. What are the details?
KERRY HANNON: Hey. Yeah, great to see you. Well, for once, we have a little good news about retirement. The Vanguard study shows that more people than ever have been setting aside money in their retirement accounts at increased levels.
So more than 4 in 10 increase the amount they set aside last year. And what a great year to do that. So the average balance is now in their plan participant accounts were up 19%, which is just phenomenal.
There are two reasons why that sort of jump up in contributions to the retirement accounts is one is, yes, people did it voluntarily. They’re getting the message. The second one is auto enrollment, more employers than ever are offering automatic enrollment.
So people don’t have to voluntarily decide to go into their retirement accounts when they start a job. And also, auto-escalation. So each year, it ramps up without anyone having to make a decision to do that. That’s great news for savers.
The other good piece of news came out of fidelity. So fidelity found that 3/4 of Americans are now confident that they’re going to be able to retire on their own terms. Now, that’s great news.
And the fun thing is that 2/3 of them say that they’re looking forward to working for fun in retirement. They’re still thinking about retiring between the ages of 61 and 62 when they’re still healthy. But most of them are planning to work part time. And that warms my heart because I’m a big fan of work.
And so that’s really encouraging news for savers. Now, the one thing I want to say this is all great news. And, of course, that is.
But there was a little bit of a red flag in the Vanguard report. And here’s that. More people than ever rated their retirement accounts and make made a withdrawal.
So it’s 4%. That’s the highest level that Vanguard has ever found in the tracking this number. It’s a small percentage. OK, great.
But the point is it’s up. And it may be for financial needs, primarily this is for financial emergencies. But here’s the thing. People have to remember that when if you take that money out before you’re 59 and a half, you’re going to pay that 10% penalty. And you’re going to pay tax on that amount as well.
So that’s an issue that I think people need to pay attention to. There are some exceptions.
JULIE HYMAN: Kerry, great to see you. As always, thanks a lot.
KERRY HANNON: Thank you.