Recent surveys suggest that about 44 percent of American workers who are saving in a workplace retirement plan feel confident they will retire comfortably. However, generation by generation, the numbers show that many individuals are way behind when it comes to reaching their savings goals.
A new survey from Natixis Investment Managers finds that 44 percent of American workers who participate in a 401(k) or other workplace retirement plan feel secure about their retirement, as long as they watch their spending .Another survey which found that more than half of adults are either somewhat more confident (30 percent) or much more confident (27 percent) about their ability to save for retirement than they were three years ago. 75% of Americans are rejecting financial help and that can spell disaster
The oldest baby boomers are in their early 70s and possibly well into retirement by now. The youngest boomers are around age 55 with only a few years left to save. However, for most boomers, their savings aren’t ready for retirement; the median account balance for baby boomers is just $152,000.
That may sound like a lot of money, but the average person age 65 and up spends around $46,000 per year, according to the Bureau of Labor Statistics. At that rate, that $152,000 would barely last three years.
According to the Transamerica survey, most boomers realize their current savings won’t cut it – nearly 70% say they expect to work past age 65 or possibly not retire at all. However, only a quarter of them said they had a backup plan in case they were forced to retire earlier than they had anticipated.
How much should the average baby boomer have saved, then? It depends on how much you expect to spend each year, but you can estimate your retirement number by using the rule of 25. It’s based on the 4% rule, which states that you can withdraw 4% of your savings the first year of retirement, then adjust that number each subsequent year to account for inflation. The rule of 25 essentially allows you to work backward to figure out your total savings based on how much you expect to spend in the first year of retirement.
For example, say you expect to spend $46,000 in your first year of retirement. Multiply that by 25, and you get $1.15 million. (You can check your work by taking 4% of $1.15 million, which comes out to $46,000). Keep in mind that Social Security benefits will play a part here, too. If you expect to receive, say, $15,000 per year in benefits, that’s only $31,000 you’ll need to save on your own. Multiply that by 25, and your adjusted retirement number is $775,000
Generation X-ers still have a few years left before retirement – but it’s approaching quickly. Individuals in this generation only have around an estimated median of $66,000 saved for retirement. With the youngest Gen X-ers in their early 40s, that’s a concerning number.
People this age also seem to be aware that they’re struggling. Only 14% say they’re “very confident” they’ll be able to retire comfortably, and nearly a third have taken a loan or withdrawal from their retirement account.
So how much work would it take for the average Generation X-er to get back on track? If you’re on the older side of the spectrum (about 54) with only $66,000 saved, you’ll need to dramatically take your savings to the next level. Even if you save $2,000 per month earning a 7% annual return, you’d only have around $500,000 saved by age 65. For those who are around age 40 with $66,000 saved, stashing away $800 per month will get you to savings of about $1 million by age 65.
The median estimated amount in millennials’ retirement accounts is $23,000, which isn’t surprising considering they have a lot of time left to save for retirement. However, given their young age, millennials are very much engaged in the topic of retirement. More than half (53%) say they expect their primary source of income in retirement to be their personal savings (as opposed to a pension or Social Security benefits), and 72% say they’re interested in learning more about how to achieve their retirement goals.
Whether that $23,000 now will amount to enough savings in the future, though, largely depends on how much you’re saving and how long you have until retirement.
Millennials are classified as those born between 1979 and 2000, which is a huge range. If you’re a 40-year-old millennial with only $23,000 saved, you may need to supercharge your savings earlier rather than later. For example, if you want, say, $800,000 saved by age 65, you’d need to save roughly $900 per month for the next 25 years to reach that goal, assuming you’re earning a 7% annual rate of return on your investments.
What’s holding workers back ?
Ideally, each generation should be much farther toward their retirement savings goals — particularly because they have access to retirement plans provided by their employers.
But other financial concerns get in the way. The biggest one: daily living expenses, which was cited by 65 percent of respondents. Then there’s generational debt, with 43 percent; housing costs, 43 percent; and health-care costs, 32 percent. Surveys show that 22 percent of workers admitted to taking a lump sum distribution from their retirement funds without moving the money to another plan. It’s not all bleak when it comes to retirement. There will be other sources of income, such as Social Security or the proceeds you may see if you decide to sell your home. Workers would be wise to understand the benefits that contributing to a workplace plan can bring. That includes the potential savings from lowering your taxable income, the extra money you may receive from employer matches, and the potential to save more once you’re 50 and older through catch-up contributions.
What to do if you’re off track?
Even if your numbers align with the median amount people in your generation have saved, that doesn’t necessarily mean you’re saving enough. If you’re falling short, the best thing you can do is set a goal for yourself and make some lifestyle changes so you can save more.
First, figure out your retirement number so you have something to shoot for. Play around with a retirement calculator to see how much you should have saved by retirement and how much you’ll need to save each month to get there.
Once you have a monthly savings goal, take a good look at your budget to see where you can make cuts. These cuts don’t have to be drastic – saving a couple of hundred dollars by cooking at home more often or riding your bike to work rather than driving to save on gas can make a big difference. If you’re seriously behind, though, you may need to make some dramatic changes, possibly by downsizing your home or moving to a less expensive neighborhood.
Regardless of how you choose to save money, the best thing you can do if you’re behind on your saving is to realize you need to make a change and then create an action plan. By making an effort to get back on track, you’re already well on your way to achieving your retirement goal.