One of the most important things you can do is to save enough for retirement. Unfortunately, many Americans aren’t saving anything for their future.
According to a survey from GoBankingRates.com, it looks as though about one in three Americans has absolutely nothing in their nest egg. This is a concerning number since it indicates that many people aren’t preparing for their financial future.
Here are the results of the survey, indicating how much money the respondents say they have saved for retirement:
- Less than $10K—23%
- $10K to $49K—10%
- $50K to $99K—8%
- $100K to $199K—8%
- $200K to $299K—5%
- $300K or more—13%
- I don’t have retirement savings—33%
If you look at those numbers it is clear there is a long way to go for many Americans hoping to retire. On top of that, the problem is compounded for women. According to the survey, women are 27% more likely than men to have no retirement savings. Part of the reason for the shortfall is likely due to the fact that many women are still the caregivers in our society, and may not have their own retirement assets.
While the idea that your partner can take care of you in retirement is a nice one, I know from experience that your partner doesn’t always stick around. At the very least, it makes sense for a stay-at-home partner to ask for spousal contributions to an IRA.
Are You Saving Enough for Retirement?
There is a good chance that you probably aren’t saving enough even if you are saving for retirement right now. It’s tempting to think that the $200 you’re setting aside each month will be enough to fund your golden years, but the reality is that it probably isn’t going to cut it. You will likely need to set aside a lot more for retirement — unless you happen to be a teenager right now.
Take some time to use a retirement calculator to figure out how much you might need in retirement, and then break down how much you need to save each month to increase the chances of reaching your goal.
David’s Note: Using a calculator can actually be very motivating. I get excited every time I use a projection of my savings and see that I’m that much closer to financial independence. You have to be patient, as savings take time to compound but once money starts growing, then you’ll reap the benefits forever.
In the past, research indicated that many Americans don’t even perform a retirement needs assessment. You won’t be able to tell if you’re saving enough for retirement if you don’t even know how much you need. Unless you are quite young, The reality is that saving something like $200 dollars a month is probably not enough to fund your retirement.
After all, compound interest isn’t a miracle. You need to give interest something to work with. This means you need to keep adding capital. Compound interest works better over time, so if you start much younger, you can get away with setting aside a couple hundred dollars a month for retirement.
The truth for those who are in their thirties, though, is that it doesn’t work as well. You aren’t going to meet your goals if you set aside $200 a month. You probably need to set aside at least $500 or $600 a month if you are getting a late start. If you are in your forties, you’ll need even more to “make retirement.”
Don’t expect your investments to “save” you. Plan on a conservative annualized return of between five and seven percent, rather than optimistic projects of between 10 and 12 percent. You’ll have a more realistic idea of what to do, and realize that you probably need to save more.
Once you face reality, and get started with your investment plan, you will be more likely to accomplish your retirement savings goals.
I Now Know I Need to Save, Now What?
After you decide how much you will need for retirement, and after you realistically look at whether or not you are saving enough, it is time to make adjustments to how much you set aside each month.
Open a tax-advantaged retirement account and start putting money into it. It’s even easier if you have an employer-sponsored plan, like a 401(k) or 403(b) at work. That way, you have a chance to have the money automatically taken care of.
These types of accounts are great, especially if you use some sort of automated type of investing. You still need to be careful though. Once you set your account on automatic, it’s easy to forget to invest more later on. As you receive raises, or if your household income grows because of a partner’s new job or your new side business, it’s easy to forget to increase the amount that you are saving.
If you haven’t increased your retirement account contributions to keep pace with your income growth, you probably aren’t saving enough for retirement. You need to re-evaluate your savings each year. If you get a three percent raise, you should also make a three percent (or more) increase in the amount of money you set aside for retirement. At the very least, your retirement contribution growth should mirror your income growth.
Aaron James 