Planning & Education | Why Save for Retirement?

Even though retirement may seem far away, planning for it as early as possible is essential because the costs can be higher than you think. While it's true that some of your expenses may decline in retirement — like house or car payments, education expenses and taxes — others may rise such as health care, travel and leisure activities. And, with the average length of retirement increasing to 20, or even 30 years, you want to make sure you don't outlive your assets.

Retirement is normally funded from three main sources of income: Social Security, pension, and personal savings/investments. This is called the "three-legged stool" concept and illustrates the fact that you need support from all three legs in order to keep from falling down. Two legs aren't generally enough — you can't depend on your pension and social security alone to fund retirement. You need to use personal savings and investments as well.

According to the Social Security Administration, Social Security and pensions provide only about 35% and 17%, respectively, of the necessary annual income for the typical retiree today.¹ That means approximately 48% of retirement assets should come from personal savings.

In a recent survey, only 42% of workers reported that they and/or their spouses have tried to calculate how much money they will need to have saved by the time they retire so they can live comfortably in retirement.²

Why start saving now? Why not worry about it later? Because the earlier you start, the more money you can accumulate and the greater chance you'll have of reaching your goals. An important factor in building retirement savings is time — not your income, not your investment growth, and not your retirement plan. Time will help build your assets, and by starting early, you can save moderate, even small, amounts each year and can be better prepared in the long run to live comfortably in retirement. If you wait, you run a greater risk of not having enough money to retire comfortably at the age you'd like.

For a better picture on how important it is to start saving now for retirement, take a look at one of our retirement planning calculators.

1. Source: Social Security Administration, 2010.
2. Source: Retirement Confidence Survey, EBRI, 2006

Investors should consider the investment objectives, risks, charges, and expenses of a fund carefully before investing. Download a prospectus that contains this and other information about a fund, and read it carefully before investing.