Saving Enough Money for Retirement

An old couple relaxing on the beach

Setting aside money now for retirement later is often difficult for many Americans.  This shows in a number of workers today and the amount of money they currently have saved for retirement.  In a recent survey conducted by GOBankingRates, it was discovered that more than half of Americans will retire with no money saved for retirement.  

Using Google Consumer Surveys, the question was posed to each group, “By your best estimate, how much money do you have saved for retirement?”  Each group contained 1,000 responses.  The following response options were available:

  • Less than $10,000
  • $10,000 to $49,000
  • $50,000 to $99,000
  • $100,000 to $199,000
  • $200,000 to $299,000
  • $300,000 or more
  • I don’t have retirement savings

After analyzing the results, it is obvious that Americans need to do a better job of saving for retirement.  In fact, there are signs that over one-third of Americans currently have no money in retirement savings.

The Breakdown

The survey revealed the following about the amount of money in retirement savings:

  • No retirement savings – 34%
  • Less than $10,000 saved – 21%
  • Between $10,000 and $49,000 – 11%
  • Between $50,000 and $99,000 – 8%
  • Between $100,000 and $199,000 – 7%
  • Between $200,000 and $299,000 – 5%
  • More than $300,000 – 14%

This scary revelation shows that over half of Americans have less than $10,000 in retirement savings.  Since the average amount spent by adults 65 and older is nearly $45,000, it is obvious that those who have less than $49,000 saved for retirement (66%) will not have enough money to last the first year after retirement, let alone the first decade.

Reasons Americans Aren’t Saving

There are many different reasons why two-thirds of Americans don’t have at least $50,000 saved for retirement.  First, many workers don’t have access to a retirement plan at work.  Since a 401(k) is an easy way to save for retirement, especially with an employer match, those without this type of plan have to find a way to save on their own.

There are several ways to save for retirement beyond the workplace plan or lack of one.  With the hectic day-to-day schedule of many Americans, the last worry to cross their minds is one of retirement savings.  However, there are many different individual retirement plans available.

Avoid Being Part of the Majority

So how can you avoid being one of the many Americans who will end up with too little in retirement savings?  There are several questions you need to answer in order to know where to begin.  

First, answer the question, “How much money is needed for retirement?”  Many people cannot even begin to answer this basic question.  The answer to this question depends on a number of expenses a person will have at retirement and the lifestyle a person wants to have or maintain.

Even if a person is just beginning their career and has no idea as to a number of expenses they will have at retirement, there are some simple guidelines to help guide a person to determine if they have enough currently saved for retirement.  To find how much money a person should aim to have saved for retirement, follow these simple guidelines and change as retirement gets closer:

  • Age 30 – Save 1x annual salary
  • Age 35 – Save 2x annual salary
  • Age 40 – Save 3x annual salary
  • Age 45 – Save 4x annual salary
  • Age 50 – Save 5x annual salary
  • Age 55 – Save 7x annual salary
  • Age 60 – Save 8x annual salary
  • Age 67 – Save 10x annual salary

For example, a person who is age 35 and makes $50,000 annually should have $100,000 (2 times their annual salary) saved for retirement.

Unfortunately, not many Americans are on track with their retirement savings.  There are some steps a person can take if they discover that they are behind on their retirement savings.

Ways to Save Smartly

When a person is ready to address their retirement savings, there are several tips that can help them save smartly in order to be ready for a comfortable retirement.

  • Start Saving Early – For younger savers, starting early is the easiest way to be ready for retirement.  Target funds are a simple way to invest and not worry about constantly changing the portfolio.  As a person progresses toward retirement, the account manager automatically changes the risk toward more conservative funds, taking out the guesswork for the investor.
  • Commit to Saving – By committing to saving a certain percentage of income, a person entering the workplace can become accustomed to saving without the pain.  As income increases over the years, the percentage stays the same while the amount increases.
  • Bonuses – For those lucky enough to get bonuses, resist the temptation to splurge.  Instead, invest that bonus in a 401(k).  Since bonuses are not part of a regular paycheck, many investors never miss the extra money.
  • Auto-Escalation – Instead of making large jumps in contributions that will cause pain to a budget, increase contributions slowly over time.  For example, increasing contributions by 2 percent every six months equals an 11 percent contribution in 2 years.
  • Reduce Investment Costs – Try to invest in funds with the lowest expense ratios if possible.
  • Monitor Accounts – While there is no need to constantly check a retirement account, don’t completely ignore it either.  Review the account each quarter and as statements are received to determine if any adjustments need to be made.
  • Take Some Risk – All investments come with some degree of risk.  Even conservative investments run the risk of inflation, so invest with the end financial plan in mind.
  • Don’t Cash Out – When switching jobs, never cash out a 401(k) due to the heavy penalties associated with early withdrawal.  Instead, roll over the 401(k) into the plan offered by a new employer or into an individual retirement account (IRA).

Just taking a few of these steps can set up investors for a comfortable and long retirement.

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