Few Americans Max Out Retirement Contributions

The vast majority of future retirees are contributing a minimal amount of their salaries to their retirement funds, while just 3% reach the maximum contribution level.

The study by University of Missouri researchers found that more than 90% of American workers are contributing a minimal amount to retirement funds. The numbers are very concerning, according to Rui Yao, an associate professor of personal financial planning with the university.

“With the future of Social Security benefits in America very much up in the air, it is crucial that people save and invest for their inevitable future retirement,” Yao said in a statement. “We studied how Americans invested for retirement before and after the recent economic recession, and our findings were alarming. Americans, especially those who are middle-aged, should be saving much more than they currently are for retirement, not only for their own financial security, but for the country’s sake as well.”

Yao looked at data from 2004, 2007 and 2010 and examined how much income people were investing into retirement funds compared to the limits set by the IRS. As the years went on, more and more Americans were contributing less.

In 2004, 43% of adults between the ages of 21 and 70 were contributing 20% of less of the IRS maximum to their retirement accounts. That number only grew in 2007 to 51% and then skyrocketed to more than 90% in 2010. As the economy got worse, more people chose to contribute less, which Yao said is counterproductive.

“Common sense economic theory tells us we should buy when the market is low and sell when the market is high,” Yao said. “But Americans are doing the opposite of that and actually contributing less when the market is low, such as during the recent recession.”

Difficult as it may be when times are tough, the best way for Americans to maximize retirement funds is to contribute more when the economy is weak, according to Yao. When markets are higher, that’s when Americans can ease up a little.

“They should also take advantage of the IRS maximum levels of contribution as much as possible,” Yao said.