Folks who haven’t saved enough for retirement may be relieved to learn they aren’t alone; most Americans have catching up to do. According to findings from the Survey of Consumer Finances (SCF), almost half of American households had no savings in retirement accounts.
Furthermore, the National Institute on Retirement Security found more than half of Americans (55%) are concerned that they cannot achieve financial security in retirement. Transamerica research states that 45% of Americans are just guessing how much they’ll need for retirement. Hope springs eternal, but it doesn’t necessarily sustain the quality of life for the duration of a financially secure retirement.
Getting Started
There are plenty of justifications and rationalizations for delayed retirement preparation. Rather than casting harsh self-aspersions on the “why?”, it’s more productive to focus on the “what now?” so that there’s time to catch up, not give up.
Three essential elements come to mind:
1. Live Below Your Means
2. Start Saving
3. Start Investing
We’ve found that many Americans’ retirement savings benchmark is $1 million, so let’s use that as an illustrative example.
40-Year-Old With Time To Save
Scarlett, a 40-year-old who wants to retire early at 60, has 20 years to make it feasible. Assuming a 5% investment return, she would need to save $30,243 annually to reach the million-dollar mark in time. Saving that much yearly might require spending less—perhaps cooking more at home, subscribing to fewer streaming services, or putting off a new car purchase. Note that if Scarlett averaged 8% per year on her investments, she would only have to save about $22,000 annually to hit the $1 million mark.
50-Year-Old With A Smaller Window
If Scarlett had waited until she was 50 to begin the process, she might consider working a little longer. Retiring at 65, she’d have to put away $46,342 each year to join the millionaire club, assuming an equivalent 5% investment return. At an 8% average annual return, this savings mark would drop to about $37,000 per year to hit the $1 million mark. Again, spending discipline might play a crucial role.
60-Year-Old With A Plan
If Scarlett didn’t start until she was 60 and pushed her retirement goal to 70, the task would be a much steeper climb, but there could still be hope. She might want to set a more realistic goal. Based upon a nationwide survey of roughly 1,350 retirees researched for You Can Retire Sooner Than You Think, the data (adjusted for inflation) pointed to happy retirees accumulating a minimum of $700,000 in liquid retirement savings. Scarlett postponing retirement until 70 would allow her more time to earn and fewer years to budget for on the back end. Within these parameters, assuming the same 5% rate of return, Scarlett would want to stash $55,653 annually to level up to $700,000.
Additional Opportunities
Employer 401(k) plans often include advantageous age provisions. For example, employees over 50 can contribute additional money above the typical 401(k) cap. In 2024, this “catch-up” contribution is $7,500 on top of the standard $23,000 limit, adding up to $30,500 and potentially turbo-boosting savings.
Furthermore, many employers match contributions. A typical 3% match equals an extra $3,000 for someone earning $100,000 annually.
It’s also paramount to consider future viable sources of retirement income. The size and number of these revenue streams can significantly affect your ability to retire comfortably. Social Security payments vary depending on the start date, so it’s sensible to run the numbers or have a professional do so before pulling the trigger. Those fortunate enough to have a pension can count on that monthly check as well.
Rental properties could potentially generate a steady stream of income. If the upfront cost is prohibitive, there are other options. Some retirees decide to downsize, which frees them up to rent out their current, paid-off home.
For those willing, a part-time job during retirement is a possibility. A bit of digging might unearth a low-stress vocation, providing the dual benefit of extra income and post-career stimulation during such a transitory period.
Reducing the cost of living can help relieve financial pressure for those with retirement savings in arrears. Some decide they no longer need the four-bedroom family home or move to a more affordable city. Numerous metropolitan areas across the U.S. offer attractive lifestyles with more modest overhead. There are even international destinations with surprisingly vibrant ex-pat communities living on a fraction of what they’d spend back home.
Bottom Line
Those who enacted the retirement plan long ago might be able to stay the course. Others may need to jumpstart the process later in life. Either way, most folks can likely still carve out a happy retirement. As with many facets of life, the most essential step is simply to get started.
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