Procrastination happens to the best of us. I personally like to procrastinate when it comes to doing laundry until I’m down to my last shirt. Sometimes though, procrastination happens with much greater and more important aspects of life. Such as saving for retirement. Does that sound like you? Have you not saved for retirement so far?
If this is you, it is time to acknowledge the fact that you did not yet save for retirement and let it go. Lamenting the lost years won’t bring them back. Wanting to dial back time is unfortunately not possible. All you can do now is face reality head on and turn the tide.
The Truth About Retirement Savings
You are not alone…
GoRankingsRate did the leg work for us and polled a number of Americans on the subject of retirement savings. The results were somewhat expected but nevertheless delivered a solid punch. We are going to turn this punch into something positive. By using it as a benchmark to compare to as well as a starting point to change things for the better.
The survey targeted three generations – millennials, Gen-X’ers as well as baby boomers who are, of course, on the doorstep of retirement. All were asked the same question. “By your best estimate, how much money do you have saved for retirement?” All answers were grouped into seven categories.
33% of Americans have no retirement savings. None, as in zero! This is quite the depressing thought since a large portion of the 33% is made up of people over the age of 55. If you are part of this group, keep reading! This is the most crucial and important aspect of your life as of right this second.
Less than $10,000
This group makes up a full 23%. This, of course, is a huge step in the right direction. After all, getting started can be the most difficult step. However, unfortunately, $10,000 won’t get you very far at all. You would still heavily rely on social security (and possibly your pension if you have one) for the majority of your retirement income.
$10,000 – $49,000
10% of American have hit their stride when it comes to savings. Millennials and Gen-X’ers make up the majority of this group which makes sense. Millennials at this point will have only now started their retirement savings, while Gen-X’ers have contributed for a while and are taking advantage of investment gains.
$50,000 – $99,000
A total of 8% of Americans has saved anywhere from $50 – $90k. This is a decent amount compared to the more than 65% of the population hovering below this threshold. For millennials and Gen-X’ers, this will be a great head start toward retirement at 59 1/2 with decades of additional savings and gains to come.
$100,000 – $199,000
Same as in the previous grouping, this group makes up 8% of all Americans. Cracking the $100k threshold is the most difficult out of all. And it will take the longest. However, on a good note, from then on the snowball effect will take effect. With additional contributions and compounding gains, retirement accounts will grow at a much faster pace.
$200,000 – $299,000
The percentages continue to decline the higher the retirement account balances. 5% of the population have saved $200k – $299k for retirement. Coupled with social security and possibly a pension, this could make for a decent retirement. Depending on living expenses of course as well as travel plans.
$300,000 or more
The decline in percentage is over once we hit the greater than $300k category. 13% of Americans own $300k or more in retirement assets. Thanks to continuous contributions and compounding interest, this will be a decent base for retirement income come 59 1/2. Social security is still going to play a big part, but this group is ahead of the game compared to the majority of the population.
So you have not saved for retirement so far?
Here is your roadmap to turn the tide!
So what if you’re in the first 56% with less than $10,000 saved? What if you have not saved for retirement so far at all? Can you turn this around? Absolutely! The younger you are, the easier it will be of course. Simply because you have more working years ahead of you. If you are nearing retirement age, there is no need to despair yet. You will have to work harder on shoring up your retirement savings, but it can be done if you commit.
Determine how much you will need for retirement. This isn’t as complicated as it may sound. If you are close to retirement, track your expenses to determine how much income you will need to cover the basics. Then add what money you think you will need for hobbies and travel during retirement and add a cushion for possible medical expenses. If you are a millennial or Gen-X’er and have a few more years to go until retirement, you will have to guesstimate how much you think you will need.
The below post can help you get started. The 4% rule is very popular within the retirement community. This is the case simply because it has worked for many. Every situation is different of course, which is why I want you to look at the 4% rule as the opening bid. Give it a read and you will soon know what retirement income to aim for.
Now it is time to determine which retirement savings account options are available to you. Yes, you might not have saved for retirement so far, but that is not a reason to not take advantage of all avenues available to you today. Check with your employer first. Your employer sponsored 401(k) and Roth 401(k) are great options.
Next, if you can reduce your expenses and free up more disposable income, invest outside of work. Online brokerages will allow you to put additional funds toward retirement. Take a look at the below two posts. Both will help you get started with step 2 in no time!
Once you have determined which retirement savings account options are available to you, now it is time to make smart investment choices. There are many financial advisors out there who will promise you heaven on earth. Just to have you sign on to their accounts. Always remember, if it sounds too good to be true, don’t go for it!
All investments come with an expense ratio. This expense pays for the management of the funds you are invested in. If these funds are managed by a manager, they will automatically be more expensive. My choice of investments are low-cost index funds. They return market to above market investment gains without me handing over a large portion of my gains to a fund manager.
If you follow these three steps, you will be well on your way to a better and more financially secure future. If you are a millennial and just starting your career, sign up for your employer sponsored retirement plan. Save diligently and make good investment choices.
If you are a Gen-X’er and you have not saved for retirement so far or have saved little, start today. You still have a number of working years ahead of you. Max out your pre-tax retirement accounts, track and budget your expenses, and invest as much money outside of your work sponsored account as possible.
As a baby boomer, your working years should be close to numbered. This is usually a time to look forward to and celebrate. Without any or little retirement savings, you have every right to be worried. Now is the time to be smart about your future. Determine your monthly expenses. Then log onto your social security account to find out your estimated benefit upon retirement.
If your expenses are covered, great. But it is very likely that they won’t be. Do you have a pension? Awesome, this might cover any difference between income and expenses that might exist. If not, you need to start investing some of your pay in retirement accounts. If not via an employer-sponsored account, then with an online brokerage.
Don’t hesitate and don’t leave your future up to chance and luck. And most importantly, don’t dwell on the past. You might not have saved for retirement so far, but that is something you cannot change at this point in time. Make the changes you can today and in your future. A happy financial future is a definite possibility!
Have you not saved for retirement so far? Did this roadmap get you thinking about how to get your retirement on track to a happy future? Check out this complete listing of all posts for more personal finance must reads!