An estimated 10,000 Baby Boomers reach full retirement age (65) every day. Many are beginning to retire – or at least think about retiring soon. With retirement on the mind for an entire generation, it makes you wonder what your own retirement forecast might look like. And when it comes to preparing for retirement, it’s all about one thing: savings.
How much do you have stashed away?
The sad truth is, people aren’t saving enough for retirement. At least not according to the most recent stats. The National Institute on Retirement Security, or NIRS, says the median retirement savings for all near-retirement households is $14,500. And for working-age households, that number drops to $2,500.
Frankly, that’s not enough. According to the U.S. Department of Labor, the average American spends 20 years in retirement, and $14,500 isn’t going to cut it. Even those who are doing better than average aren’t doing great. The NIRS found that 62% of working households ages 55-64 have retirement savings less than one year’s salary, which is far below what they will need to maintain their standard of living in retirement.
The NIRS concludes, "The average U.S. working-age household has virtually no retirement savings." And points out that two-thirds of working families fall short of conservative retirement savings targets.
So what can you do about it? Let’s take a look.
How You Can Start Saving
To boost savings, Catherine Collinson, president of the nonprofit Transamerica Center for Retirement Studies (TCRS) suggests seven steps to get the ball rolling:
1. Calculate retirement savings needs. How much do you spend on living expenses now, and what do you think you will need for future health care expenses and long-term care? Keep inflation in mind, but also factor in government benefits like Social Security and Medicare.
2. Write down a retirement strategy. Have a backup plan in case of unforeseen circumstances, such as a health problem that leads to an early retirement.
3. Learn about retirement investing. Use an online tool like Investopedia.com, or check into whether or not your retirement plan provider has in-person or online resources.
4. Participate in employer-sponsored retirement plans, if available, and take full advantage of matching employer contributions. According to the Department of Labor, in 2014, 30% of private industry workers with access to a defined contribution plan (such as a 401(k) plan) did not participate.
5. Consider retirement benefits as part of total compensation. Ask an employer for a plan if they don’t offer one.
6. Take advantage of the Saver’s Credit, if you qualify. This is a tax credit for contributions to a qualified IRA, 401(k), or certain other retirement plans, if you fall under a certain income level. Also, the IRS allows workers who are at least 50 years old to make an additional $6,000 in “catch-up” contributions through their retirement plan.
7. Talk about retirement with family and close friends, and seek a financial advisor if needed.
Create a Habit
Saving is about will power, consistency, and creating good habits. We are constantly bombarded with advertisements trying to get us to part with our hard-earned savings. Be vigilant about saving, and be aware of the difficulties of saving in the face of consumerism. Learn to say “no” now, so you can enjoy saying “yes” later.
If you want to get an idea of if you’re on the right path to retirement, you can use the Retirement Outlook Calculator created by TCRS.
Things to Consider:
• Start saving immediately. Even small, regular contributions can add up and help get the ball rolling.
• Always take full advantage of your employer’s retirement plan.
• Be aware of your spending habits and the bombardment of consumerism in the media.