The answer is scary. According to the recent studies, 1 in 3 American non-retirees have no retirement savings or pension at all. And, 38% of respondents say that they have no plans to retire, or will delay it as long as possible, as a means of coping without retirement savings.
The lack of planning for the so-called “golden years” varies by age, with boomers (age 53-71) more prepared than their children, the Millennials (ages 17-35), but still not prepared enough. According to Fidelity Investments, a person should have eight times their salary saved by age 60 for retirement purposes. Yet, a report from the Economic Policy Institute, the median retirement savings for families between 50 and 55 is only $8,000. The median for families between 56 and 61 is only $17,000 – a far cry from the eight-times-salary recommendation.
Of course while some older Americans have literally no retirement money in the bank, many are more than prepared, which is why the median is a good indicator of all Americans.
Millennials are less prepared than the Baby Boomers when they were the same age: According to Wells Fargo, they are not only making 20% less than Baby Boomers earned at the same stage in life, but 41% of Millennials haven’t even started saving for retirement – a factor likely due to less disposable income.
The message is clear: start saving for retirement if you haven’t already. And if you have, increase your savings any way you can. Don’t rely on Social Security: it should be viewed as supplemental, not a primary source of income for retirees. Here are some ways to boost your personal retirement savings and ensure that you have income for your latter years:
Start Saving Early.
The earlier you begin saving for retirement, the less you will have to save on a per-year basis. Most financial planners recommend that you start saving 10 to 15% of your income, beginning in your 20s. If that’s too much, consider raising the percentage as your income rises over the years.
Save a Little Extra.
Increasing your contribution rate to a retirement account from 4 to 6%, for example, can add over $100,000 over 30 years, assuming a $50,000 average salary. In addition, if you get a surplus of money in the form of a bonus or tax refund, put away some—or even all—of the funds toward retirement savings rather than an immediate splurge.
Participate in Your Employer’s 401(k) Plan.
Most employers offer 401(k) plans, and many offer to match a portion of the money your invest. In addition, the funds you invest are tax-free until you withdraw them. If you are not already participating, be sure you start, and if you are, consider investing in the maximum amount allowable to boost your retirement savings.
Consider an IRA.
All money saved in a Roth IRA is after-tax, so if you make the contribution while your tax rate is low, you will be able to withdrawal the money upon retirement tax-free. Contributions to a traditional IRA, on the other hand, are tax-deductible upon contribution and may make more sense, according to your current tax bracket. Consult with a financial advisor to figure out which option is best for you.
Open a myRA.
The new myRA was started by former President Obama as a new way for working Americans to be part of an IRA. “It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in,” he said in his 2014 State of the Union Address. The myRA is an after-tax Roth account which invests in savings bonds, which will be protected by market volatility and is especially for Americans who currently lack access to workplace retirement accounts such as a 401(k) plan.
These are just some of the ways you can increase your retirement nest egg and begin to have more control over your financial future. The goal is to be able to retire with at least enough funds to maintain your current standard of living. Do whatever is within your means, especially if you are younger, so that you won’t have to face retirement without adequate savings. Retirement may seem like a long way off, but it requires a significant amount of savings you should be considering if you don’t want to be caught in financial uncertainty.
Not sure where you stand? Schedule a free consultation with one of our financial advisors.