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Are You One of the Lucky Ones?

Jason Hemenway,

August 03, 2016

Retiring Your Way


With the aging of the nation’s population, a continuing decline in the availability of traditional pensions, and concerns about the future of Social Security, many workers in the United States worry that they won’t have enough money set aside for their retirements. The Employee Benefit Research Institute’s 2016 annual Retirement Confidence Survey found that only 37% of Americans are very confident that they will have enough money for a comfortable retirement, while 33% are somewhat confident, and 14% are not at all confident. ( - 2016).

It’s safe to say, everyone needs to save for retirement and everyone needs a means to save. Are you fortunate enough to have access to an employer-sponsored retirement plan? In other words, does your employer offer a 401(k) or a 403(b)? Unfortunately, not everyone is offered a means to save through their employer and not everyone who has access to an employer-sponsored retirement plan takes advantage of that plan.

Today, only about half of all workers in the United States participate in a workplace retirement plan, according to an analysis of data compiled by The Pew Charitable Trusts. Overall ONLY 58% of workers have access to a plan, while only 49% participate in one. Looking at the numbers a different way, that leaves more than 30 million full-time private-sector workers, age 18 to 64, without access to an employer-based retirement plan. ( 2016).

Making it easy to save: Employer sponsored plans take money directly out of each paycheck and defer it into your retirement plan automatically, making it very easy to save.

Automatic Enrollment
Some plans use the “Auto-Enrollment” or “Auto-Escalation” features. An automatic contribution arrangement (also known as automatic enrollment) is a feature in a retirement plan that allows an employer to “enroll” an eligible employee in the employer’s plan unless the employee affirmatively elects otherwise. ( 2016).

The “Automatic Escalation” feature allows for an employee to automatically set up a periodic incremental increase of retirement savings contributions at a designated time throughout the year to allow themselves to increase their retirement plan contribution automatically to a specified percentage. For example, it allows an employee to automatically increase their 401(k) contribution by 1% annually until it reaches a certain point (Usually 10%). It’s an easy and effective way to increase retirement contributions without having to think about it. “Set it and forget it.”

Matching Contributions
Many employers will match a portion of your savings. It's like passing up free money if you don't participate. A common match might be 50% of the first 6% of pay you save. Under that scenario, someone whose annual salary is $35,000 and who contributes 6% to the plan ($2,100) would receive an additional $1,050 in matching employer contributions. It's pretty hard to find a 50% return on any investment. Even if your employer doesn't offer matching contributions, the tax advantages and lower costs of a 401(k), still make this one of the best ways to save money for retirement. ( – 2016)

Tax-Deferred Earnings
When you contribute a percentage of your pay to a pre-tax 401(k) plan, you immediately start paying less to Uncle Sam. That's because your contribution comes out of your paycheck before income taxes are deducted. That means your taxable income is less, which in turn lowers your tax bill. Thus, you "defer" or postpone paying income tax on your 401(k) savings and any investment earnings they may accumulate until you withdraw the money at retirement. For many people, their income – and therefore income tax rate – is lower at retirement, so they're paying a smaller amount of tax on the money they pull out during retirement. Plus, if you happen to retire to a state that has no or very low state income tax, you'll be that much further ahead. ( – 2016)

If your employer offers a retirement savings plan, consider yourself one of the lucky ones. Let’s re-emphasize a very important and eye-opening fact, more than 30 million full-time, full-year private-sector workers ages 18 to 64 do NOT have access to an employer-based retirement plan. Think about that for a second, 30 million employees are not even offered a retirement savings plan by their employer. Incredibly, for those who do have access to a retirement savings plan, not even half are taking advantage of their opportunity. With all the uncertainty facing each of us in today’s world, now more than ever is the time to start saving for your retirement. If your employer offers a retirement savings plan with all its advantages such as tax-deferred savings earnings, employer matching contributions, low costs and fees, automatic escalation features, etc., consider yourself “one of the Lucky ones” and take advantage of that wonderful option that is afforded to you!

As always, we at Union Bank & Trust invite you to visit the Retirement Education Center for tremendous retirement and financial wellness resources at your fingertips.

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This blog article is for informational purposes only, and is not an advertisement for a product or service. The accuracy and completeness is not guaranteed and does not constitute legal or tax advice. Please consult with your own tax, legal, and financial advisors.