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3 Biggest Drivers of Retirement Savings Success


As retirement nears, many boomers are coming face to face with the fact that their nest egg might not provide them with enough income to last through retirement.  In fact, more than 40% of baby boomers are at risk of not even having enough retirement income to pay for basic retirement expenses like uninsured health-care costs, according to a 2010 study by the Employee Benefit Research Institute.  And in looking at this situation, it seems clear that whatever we’re doing to save for retirement just isn’t cutting it.  So, what works?

A survey of nearly 3,000 workers by Putnam Investments reveals that, while there’s not a magic bullet for our stagnating nest eggs, some strategies tend to lead to greater retirement savings than others. Here are the three behaviors that have the greatest impact on the size of Americans’ nest eggs:

1. Employing a consistent, long-term savings and investing strategy.

It may seem like a ‘duh,’ but let’s face it, a lot of people simply don’t practice a disciplined approach to long-term savings and investing, which, Putnam says, is “the most powerful factor” in determining the size of our nest eggs, regardless of income level. Case-in-point: The people who seemed most able to replace their current income in retirement – those who were on track to replace 100% or more of their current t income — and the people who seemed least able – those who were on track to replace less than 45% — had the same annual mean household income, $93,000.  “A clear difference-maker appears to be behavior around savings,” not income, the survey concludes.

How to do it: At regular intervals, say, every two weeks or once a month, put away a percentage of your salary — experts recommend saving at least 10% of your income — into your retirement fund. Then, leave it alone, revisiting your investment selections with your financial adviser about once a year or so.  Click here to learn more about how to smartly invest your retirement savings.

2. Working with a financial adviser

Those with a paid financial adviser had an 82% chance of replacing all of their current income in retirement, while those without a paid adviser had just a 61% chance, the study found. This finding held true across income levels. (Note: Putnam sells its funds through advisers.)  Jon  Goldstein, a spokesperson for Putnam, says these findings can at least partially be explained by a so-called “multiplier effect” — part of this retirement success is due to the fact that advisers make people save more, and part of it is due to the fact that people who are likely to save more and more diligently are also more likely to seek out advisers.

How to do it: If you don’t already have an adviser, look for one in your area at — the National Association of Personal Financial Advisors’ Web site, which lists thousands of accredited, fee-only advisers. You can also check out’s new adviser tool, which allows you to see customer ratings of advisers.

3. Saving money in your workplace retirement plan

“The best-prepared Americans are participants in 401(k) or other defined-contribution plans who currently are contributing 10% or more of their income to their plan,” the study concluded. What’s more, even those who are currently contributing just 4% to 10% of their income to their retirement plan are still doing pretty well, with an 84% chance of being able to replace their current income in retirement. On the flip side, the least-prepared Americans are those who are not eligible for an employer-based retirement plan (that’s roughly half of the U.S. population, the study finds); this group only has a 46% chance.

How to do it: Aim to save a least 10% of your income in your 401(k) plan, more if you’re behind on your retirement savings.  If your employer doesn’t offer a retirement plan (and even if it does), open an IRA or Roth IRA so you can take advantage of these tax-advantaged retirement options, experts say.  Click here to learn more about how to manage your 401(k).

To be sure, this study isn’t the final word on effective retirement savings. For one, as anyone who’s glanced at a newspaper recently knows, our Social Security payments may look quite different in the coming decades than they do now — a fact that could have a large impact on retirement income. What’s more, while the Putnam study highlights that some of these trends hold true regardless of our income levels, it doesn’t focus a lot on the fact that income matters: It’s often much easier for affluent people to boost their savings rate and afford an adviser than it is for those in lower income brackets.

Still, the Putnam findings – though not earth-shattering – serve as a gentle reminder that taking simple steps like contributing regularly to a 401(k) and reviewing your financial plan with an adviser once a year can make a big difference in your bottom line.


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About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.