When it comes to questions about retirement savings or saving enough for retirement, the standard answer in America is “No!”
And it almost doesn’t matter which question you ask.
- Have you completed a calculation to know how much you should save for retirement? “No!” So says 54 percent of American adults, according to a survey by the Employee Benefit Research Institute.
- Are you contributing to any retirement plan? “No!” So says 49 percent of those surveyed by LIMRA, a marketing and research firm.
- Do you still plan to retire at 65? “No!” So says 75 percent of respondents to a Gallup poll.
So much for the Golden Years.
Retirement Plans Take Back Seat
To be fair, the doom and gloom about retirement is a recent development. According to Gallup, 10 years ago, people thought they could retire by the age of 63. A decade before that, most expected to be out of the office and on the golf course by 60.
What happened is simple: “People overestimated the returns they would get on their investments,” said Matt Kelly, a financial adviser for Morgan Stanley, “or they quit contributing to their retirement plan.
“Plus, some people took on more debt than they realized, and trying to pay that off became the focus instead of retirement.”
The way to reverse this course is just as simple: “Answer yes to all three of the questions (above),” Kelly said.
How Much Money Do You Need?
The needs calculation usually is the first step in saving enough for retirement. You should know how much money you’re going to need to maintain a lifestyle you are comfortable with. This can be a daunting task or a simple one, depending on how precise you want to be.
You could put together a budget of expenses vs. income and, depending on your current age, project those numbers 10, 20 or even 30 years into the future and come up with a retirement number that might be accurate.
Or might not.
No one knows what the future holds in terms of health, accidents, stock market ups and downs and how much that will affect you financially.
Best to Start Early
If you prefer a simple plan, the 10 percent rule might be the ticket.
Start saving 10 percent of your earnings at the age of 25, invest it with even average results, and you should have enough money to live comfortably for 30 years of retirement. If you start retirement savings at 35 or 45, obviously the percentage you save must go up.
For example, someone who saves $50 a week, starting at 25, and sees a modest return of 8 percent on their investment, will have $725,192 by age 65. Only $103,680 of that would be your contributions. The rest — $621,512 — would be interest. That’s the power of time and compounding interest.
To show you what a difference it makes to start early, if you waited until you were 45 to start retirement savings, and doubled the weekly contribution to $100, you would have only $256,801 by age 65. You would have invested about the same amount — $103,920 — but gained only $152,881 in interest.
If you failed to start early and are nearing retirement, talk to your financial adviser about the different types of annuities of annuities that are available.
There are other ways to gauge whether you’re on the right track to a comfortable retirement, but as Kelly suggested, the easiest way is to be able to say “Yes!” to all questions about retirement.
Bill Fay is a business writer for Debt.org, focused mainly on stories about financial matters affecting families and small businesses. He has 30 years of experience working in newspaper, radio and television, mostly dealing with college and professional sports.
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