For millions of Americans, financial security in retirement is on shakier ground than they'd like, because Social Security's future is unclear. The government program's annual income from payroll taxes has fallen shy of its annual payments to recipients since 2010, and according to Social Security's Board of Trustees, the trust funds that have been making up for the shortfalls will run out of money in 2034, requiring an across-the-board cut in benefits of about 25% if Congress does not act to shore up the program.

The uncertainty associated with Social Security only increases the pressure on workers to save more. However, a recent study by Transamerica Center for Retirement Studies found that a shockingly high proportion of people aren't taking advantage of their employers' retirement savings plans. Furthermore, a large percentage of Americans who are participating in these plans are failing to make the most of them. If you have access to a 401(k) or 403(b) plan but are not investing in it, or are only contributing a little, you're boosting your odds of running out of money in retirement.

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Why the worry?

The average over-65 household's expenses exceed $40,000 per year, yet the average retiree collects just $16,848 in Social Security in 2018. Personal savings are bridging the gap between spending and Social Security; however, most Americans have too little set aside in savings to produce enough income to make up the difference. As a result, retirees' savings accounts are shrinking too quickly.

Advisors recommend withdrawing no more than 4% per year to avoid outliving savings, but most workers have saved too little to stick to that 4% rule. According to Transamerica's survey, baby boomers approaching retirement have only set aside a median $164,000. At a 4% withdrawal rate, that would only provide about $6,560 per year. For perspective, a retiree with $40,000 in expenses and average Social Security income would need at least $575,000 to avoid drawing down his or her savings too quickly at a 4% withdrawal rate.

A costly mistake

Almost 30% of workers fail to take advantage of workplace retirement plans, and because 96% employers match at least some of a worker's contributions, those workers are literally forgoing free money. 

The amount of money people are giving up by failing to contribute to these plans, or by contributing less than they can, is significant. According to Vanguard, the median employer match is 4% of income, but 16% of employers match up to 6% or more. The most common plans match 50% of income up to a set percentage, but many plans will match at least some contributions dollar for dollar.

In 2017, the average worker contributed 6.8% of his or her income to a 401(k). Including employer matches, that resulted in total contributions equal to 10.3% of income.

Those contributions can really add up. For example, a 30-year-old worker saving 6.8% of his or her income from age 30 to 65 could wind up getting more than $100,000 in free money because of employer contributions, if the employer matches 50% of contributions up to 4% of income, the employee gets a 2% annual raise, and he or she earns a hypothetical 6% annual return. At age 65, that person would wind up with a $516,505 nest egg, of which employer contributions were responsible for $117,388! 

What to do now

Saving money can be hard, but employers are making it easier. Many are automatically enrolling their employees in retirement plans, and often those plans include an auto escalation feature that allows workers to increase their contribution by a little bit every year. The auto-escalation feature is a great way to increase your savings every year without busting your budget, so if you're not taking advantage of it, make an appointment with your human resources department to find out if it's on offer. If so, signing up for it could give you the best shot at living the kind of retirement you want, rather than the retirement you can afford.