With the majority of us living longer than the inventors of Social Security ever anticipated, it’s becoming obvious that few of us are saving enough for a prolonged retirement. Consequently, there has been a great deal of discussion about the “pension crises” and the upcoming “savings gap”.
Yet this does not indicate that we are not saving in any way. Research by BlackRock has actually tried to learn exactly what encourages individuals to save, and exactly what these savings are for.
The results showed that many people were understandably prioritizing their shorter-term demands, and placing longer-term saving into cold storage.
One of the most typical reasons (32%) for saving — and it’s a good reason — was to develop a rainy day fund, to cover life’s emergency situations.
The next biggest concern, mentioned by 29% of participants, was saving to pay for vacations.
These savings tend to be kept in readily accessible accounts, so they can be easily and quickly accessed.
But longer-term objectives, such as constructing a healthy and fully funded retirement account, ought to not be forgotten. We would suggest investing in other assets, such as company stocks or bonds that could possibly provide more growth or earnings. This is typically done by means of a pension, IRA (Roth or traditional) or possibly a mutual fund or exchange traded fund (my personal favorite).
It may not come as a surprise to you if you have them, but having kids forces savers to concentrate on longer-term objectives. The survey found that 10% of savers were putting money aside to cover anticipated education expenses — both private elementary and high school costs as well as university costs, fees, and expenses.
Depending on the time horizon, parents should review various investment plans, such as 529 plans, to fulfill this necessity.
This analysis by BlackRock shows that the savings habit is deep-seated, yet the trick is to handle different concerns and savings goals so you do not forget your family’s longer-term needs. Talking with an advisor could help you analyze both longer-term and short-term necessities, and allocate your money accordingly.
One option is to drip-deposit cash into different savings plans, so each month you contribute an equal quantity into an account for next year’s vacation and your retirement account.
Undertaking this kind of personal pledge can be a much more predictable way of developing a savings account that lasts.
If you procrastinate until the end of the year, hoping to calculate exactly how much you could manage to deposit, there could be more serious and urgent demands on your money. And investing a little here and there but doing it regularly is an effective method of evening out the ups and downs of the market.
*Source: BlackRock Investor Pulse Survey, 2013
Disclosure: we owns shares of BlackRock ETFs