Median Retirement Savings Are Worryingly Low: Here’s What You Can Do About It – The Motley Fool
Posted: November 2, 2019 at 5:48 pm
Retirement is one of the few goals shared by nearly everyone. While most get there in the end, many find that this new era of supposed freedom comes with increasing financial constraints. Hopefully, you can afford to cover at least your basic living expenses in retirement, but thousands of Americans fall short of this goal, either because they cannot save as much as they should or because they underestimate the true costs of their retirement.
Median retirement savings for American workers sit at around $50,000, according to a recent Transamerica study. The Bureau of Labor Statistics reports that the average household headed by an adult 65 or older will spend this in nearly one year. If we assume this average spending with adjustments for inflation over a 30-year retirement, it's not unreasonable to think retirement could cost $1.5 million to $2 million or more. This can seem an impossible goal for those sitting with $50,000 or less in their retirement accounts right now, but with a few of the strategies below, it just might be possible.
Image source: Getty Images.
No matter how much money you have saved for retirement, your first step is the same as anyone else's: Create a detailed retirement plan. Start by estimating the length of your retirement by subtracting your preferred retirement age from your estimated life expectancy. One in three 65-year-olds today can expect to live past 90 and one in seven will live past 95, according to the Social Security Administration so, to be safe, plan for a long life.
Total up your average estimated costs in retirement. Start with basic expenses first, like food, housing, and healthcare. Then, you can allot some extra money for travel and entertainment if you choose. Multiply your estimated annual retirement expenses by the number of years of your retirement, adding 3% annually for inflation. This is your total estimated retirement cost, but you don't have to save this all on your own.
Unless you're stashing all your retirement savings in a savings account (which I would advise against), your money's probably going to grow over time. Depending on how you invest your money, it's possible to see a 7% to 8% annual rate of return over time. But you should use a 5% to 6% rate of return when calculating your investment growth, so your plans aren't derailed if your money doesn't grow as quickly as you'd expected. A retirement calculator will do this math for you and it can also factor in inflation for you, too. The final step is to subtract any free money you expect for retirement (more on that below) to figure out how much you must save on your own.
Social Security will be there for you when you retire, whether that's this year or in a few decades, and it can give you hundreds of thousands of dollars over the course of your retirement. This can go a long way toward reducing the retirement burden on you, but you need to understand the role you play in the size of your checks so you don't accidentally cost yourself benefits.
Your checks are based on your average monthly earnings during your 35 highest-earning years with adjustments for inflation. If you haven't worked for at least 35 years, you'll have to factor in some zeroes, which will weigh down your average, and if you've worked less than 10 years, you won't be eligible for Social Security at all.
The age you begin taking benefits also affects the size of your checks. If you want your full benefit, you must wait until your full retirement age (FRA) -- currently 66 or 67, depending on your birth year. You can begin as early as 62, but then you'll only get 70% of your scheduled benefit per check if your FRA is 67 or 75% if your FRA is 66. Delaying benefits past your FRA will increase benefits until you hit the maximum at 70. This is 124% of your scheduled benefit per check for an FRA of 67 or 132% for an FRA of 66.
Your employer might also offer free money toward your retirement in the form of a pension or 401(k) match. Always take advantage of any 401(k) match available to you unless you need all your income for basic living expenses. Try some of the tips below to lower your expenditures if this is the case. Watch out for your company's vesting schedule, too. This indicates when employer-matched funds are yours to keep and leaving before you're fully vested could cost you some or all of your 401(k) match.
Lowering your expenses today can free up more money to put toward your retirement savings. There are many approaches to doing this, including canceling services you no longer use, limiting discretionary spending, downsizing your home, or paying off debt. Take every penny you're saving and put it toward your retirement.
If you continue these money-saving strategies into retirement, you might also end up reducing the cost of your retirement. Cutting back on travel in retirement or delaying retirement by a few months or years can also help you narrow the gap between what you have and what you need. Delaying retirement is especially effective because it gives you more time to save while reducing the number of years your savings has to last.
In addition to lowering your expenses, look for ways to increase the money you have coming in. This might mean starting a side business or pursuing promotions at your existing job. This will help you by boosting the cash you have available for retirement as well as your average monthly earnings used to calculate your Social Security benefits.
Stay mindful of the retirement contribution limits every year. You may not need to max them out, though you can if you'd like. But avoid overcontributing because you'll incur a 6% penalty on the excess for every year it remains in your account.
You're allowed to contribute up to $6,000 to an IRA in 2019 and $19,000 to a 401(k). Adults 50 and older are allowed an additional $1,000 and $6,000, respectively, in catch-up contributions. These limits change periodically, so you may be able to contribute more in the coming years than you can today.
If you stick with the above strategies, you will definitely notice an increase in your retirement savings over time. Whether that's enough to cover your dream retirement depends on when you started, the lifestyle you want, and how much time you have until you exit the workforce. But a comfortable retirement where you don't have to worry about being able to afford basic living expenses could well be within reach.
Follow this link:
Median Retirement Savings Are Worryingly Low: Here's What You Can Do About It - The Motley Fool
- Pope OK's Indy archbishop's retirement [Last Updated On: September 22nd, 2011] [Originally Added On: September 22nd, 2011]
- Shoaib Akhtar announces retirement [Last Updated On: September 23rd, 2011] [Originally Added On: September 23rd, 2011]
- William Regal Announces his retirement [Last Updated On: September 23rd, 2011] [Originally Added On: September 23rd, 2011]
- Shaq Announces Retirement, Will Miss Free Throws [Last Updated On: September 24th, 2011] [Originally Added On: September 24th, 2011]
- Elena Dementieva Announces Career Retirement [Last Updated On: September 24th, 2011] [Originally Added On: September 24th, 2011]
- 1st and 10 discuss Randy Moss retirement and legacy [Last Updated On: September 24th, 2011] [Originally Added On: September 24th, 2011]
- American Retirement - French and Saunders [Last Updated On: September 25th, 2011] [Originally Added On: September 25th, 2011]
- Planning Your Retirement [Last Updated On: September 25th, 2011] [Originally Added On: September 25th, 2011]
- Shaquille O'Neal Retirement Press Conference (6/3/11) [Last Updated On: September 26th, 2011] [Originally Added On: September 26th, 2011]
- Shahid Afridi Announced His Retirement [Last Updated On: September 26th, 2011] [Originally Added On: September 26th, 2011]
- NHL: Mike Modano Announces Retirement [Last Updated On: September 26th, 2011] [Originally Added On: September 26th, 2011]
- REALIST NEWS - Pentagon to cut veteran retirement program? [Last Updated On: September 26th, 2011] [Originally Added On: September 26th, 2011]
- Joe Montana Retirement [Last Updated On: September 28th, 2011] [Originally Added On: September 28th, 2011]
- Fire Chief Rick Lasky's Retirement Video - City Of Lewisville [Last Updated On: September 30th, 2011] [Originally Added On: September 30th, 2011]
- Bob's retirement celebration [Last Updated On: September 30th, 2011] [Originally Added On: September 30th, 2011]
- Smackdown vs Raw 2011 - Edge Retirement Tribute [Last Updated On: October 1st, 2011] [Originally Added On: October 1st, 2011]
- ★ Assassins Creed Revelations - Original Music "Assassin's Retirement Home" ft. TGG - TGN [Last Updated On: October 2nd, 2011] [Originally Added On: October 2nd, 2011]
- Ronaldo's Goodbye Part 1 - Retirement Announcement (with English subtitles) [Last Updated On: October 4th, 2011] [Originally Added On: October 4th, 2011]
- West Palm Beach Police Chief Announces Retirement [Last Updated On: October 5th, 2011] [Originally Added On: October 5th, 2011]
- Ben Stein Talks Retirement -- Part 1 [Last Updated On: October 6th, 2011] [Originally Added On: October 6th, 2011]
- Old Age Perils: Retirement made bleak in UK by rising costs [Last Updated On: October 6th, 2011] [Originally Added On: October 6th, 2011]
- Edge discusses retirement two weeks before being forced to retire [Last Updated On: October 7th, 2011] [Originally Added On: October 7th, 2011]
- Shaquille O'Neal Retirement Mix (All Of The Lights) [Last Updated On: October 8th, 2011] [Originally Added On: October 8th, 2011]
- Stock market impact on retirement [Last Updated On: October 9th, 2011] [Originally Added On: October 9th, 2011]
- Retirement Jock Jeff Thompson-Estate Planning Life Insurance Strategies [Last Updated On: October 10th, 2011] [Originally Added On: October 10th, 2011]
- Baby Boomers Retiring in Texas [Last Updated On: October 10th, 2011] [Originally Added On: October 10th, 2011]
- Hulk Hogan Announces His Retirement From Wrestling [Last Updated On: October 12th, 2011] [Originally Added On: October 12th, 2011]
- First Draft of Yao Ming's Retirement Speech [Last Updated On: October 13th, 2011] [Originally Added On: October 13th, 2011]
- Uncut: Shaq Retires - Video [Last Updated On: October 16th, 2011] [Originally Added On: October 16th, 2011]
- Farewell Discovery: Space shuttle's last landing before retirement - Video [Last Updated On: October 16th, 2011] [Originally Added On: October 16th, 2011]
- Yao Ming Retirement Speech (FULL) - Video [Last Updated On: October 17th, 2011] [Originally Added On: October 17th, 2011]
- Shaquille O'Neal Retirement Press Conference 6/3/11 - Video [Last Updated On: October 18th, 2011] [Originally Added On: October 18th, 2011]
- Tyler Seguin - Harvard Lampoon retirement skit - Video [Last Updated On: October 19th, 2011] [Originally Added On: October 19th, 2011]
- iPHONING MY WAY TO RETIREMENT $.70 AT A TIME by Eugene Lin, Ep 44 - Video [Last Updated On: October 19th, 2011] [Originally Added On: October 19th, 2011]
- Dilbert Animated Cartoons - Confidential Information, Retirement Planning and Visionary Leadership - Video [Last Updated On: October 22nd, 2011] [Originally Added On: October 22nd, 2011]
- Steve McNair Retirement Speech - Video [Last Updated On: October 23rd, 2011] [Originally Added On: October 23rd, 2011]
- Mark Recchi announces retirement after Cup win 6/15/11 - Video [Last Updated On: October 25th, 2011] [Originally Added On: October 25th, 2011]
- Tax-Saving Tips - Retirement Savings - Video [Last Updated On: October 26th, 2011] [Originally Added On: October 26th, 2011]
- When elephants retire - Video [Last Updated On: October 26th, 2011] [Originally Added On: October 26th, 2011]
- BayPort Credit Union: Retirement - Video [Last Updated On: October 28th, 2011] [Originally Added On: October 28th, 2011]
- Randy Couture Talks Machida Kick, Retirement - Video [Last Updated On: October 31st, 2011] [Originally Added On: October 31st, 2011]
- Raw: Edge reveals that he must retire from competition - Video [Last Updated On: October 31st, 2011] [Originally Added On: October 31st, 2011]
- Shaquille O'Neal Boston Celtics Highlight Reel (Retirement Mix) - Video [Last Updated On: November 2nd, 2011] [Originally Added On: November 2nd, 2011]
- Social Security vs. Private Retirement Accounts - Video [Last Updated On: November 3rd, 2011] [Originally Added On: November 3rd, 2011]
- Roy Nelson on Retiring Cro Cop at UFC 137, Eating Well + Steven Seagal Movies - Video [Last Updated On: November 6th, 2011] [Originally Added On: November 6th, 2011]
- FedEx Express Ad: Retirement - Video [Last Updated On: November 6th, 2011] [Originally Added On: November 6th, 2011]
- Mirko Cro Cop Talks Retirement - Video [Last Updated On: November 7th, 2011] [Originally Added On: November 7th, 2011]
- MLB - Tony La Russa Announces Retirement - Video [Last Updated On: November 8th, 2011] [Originally Added On: November 8th, 2011]
- Make your retirement fund recession-proof - Video [Last Updated On: November 10th, 2011] [Originally Added On: November 10th, 2011]
- Curtis Joseph Retirement Press Conference - Video [Last Updated On: November 13th, 2011] [Originally Added On: November 13th, 2011]
- Joe Paterno Retirement -- Is it Fair? -- UPDATE: Paterno FIRED - Video [Last Updated On: November 15th, 2011] [Originally Added On: November 15th, 2011]
- Finance Friday: How to Protect Your Retirement Date from a Market Decline - Video [Last Updated On: November 19th, 2011] [Originally Added On: November 19th, 2011]
- Best Of Shaq - Retirement Press Conference - Video [Last Updated On: November 19th, 2011] [Originally Added On: November 19th, 2011]
- Lampard and Becks on why Heskey's retirement is great news! - Video [Last Updated On: November 21st, 2011] [Originally Added On: November 21st, 2011]
- Brad Pitt interview: Retirement is on the way - Video [Last Updated On: November 22nd, 2011] [Originally Added On: November 22nd, 2011]
- Bill Gates' spoof retirement video - Video [Last Updated On: November 22nd, 2011] [Originally Added On: November 22nd, 2011]
- Retirement village purchase arrangements.m4v - Video [Last Updated On: November 26th, 2011] [Originally Added On: November 26th, 2011]
- What is a retirement village? - Video [Last Updated On: November 26th, 2011] [Originally Added On: November 26th, 2011]
- Retired CIA Officer Ray McGovern: Israel - The Elephant in The Room 1/3 - Video [Last Updated On: November 27th, 2011] [Originally Added On: November 27th, 2011]
- UNCUT: Frank Retirement News Conference - Video [Last Updated On: November 29th, 2011] [Originally Added On: November 29th, 2011]
- Retirement - Kaiser Chiefs - Video [Last Updated On: November 29th, 2011] [Originally Added On: November 29th, 2011]
- Peter Forsberg Jersey Retirement - Full Ceremony - HD [Part 2/3] - Video [Last Updated On: November 30th, 2011] [Originally Added On: November 30th, 2011]
- Alonzo Mourning Gets #33 Retired in Miami - Video [Last Updated On: December 1st, 2011] [Originally Added On: December 1st, 2011]
- Hulk Hogan's Retirement Takes A Shocking Turn - Video [Last Updated On: December 2nd, 2011] [Originally Added On: December 2nd, 2011]
- NewsRadio - Retirement - Video [Last Updated On: December 3rd, 2011] [Originally Added On: December 3rd, 2011]
- Frank's Retirement Flight in HD - Video [Last Updated On: December 4th, 2011] [Originally Added On: December 4th, 2011]
- NBA 2K12 My Player Retired - Video [Last Updated On: December 9th, 2011] [Originally Added On: December 9th, 2011]
- What Financial Firms don't Get About Retirement - Video [Last Updated On: December 11th, 2011] [Originally Added On: December 11th, 2011]
- Minecraft Tutorials - Tutorial World "Retirement Tour" - Video [Last Updated On: December 12th, 2011] [Originally Added On: December 12th, 2011]
- Retirement in Ecuador - Video [Last Updated On: December 13th, 2011] [Originally Added On: December 13th, 2011]
- UFC 135: Matt Hughes on Retirement + Koscheck (Pre-Fight Intv w/ Workout) - Video [Last Updated On: December 13th, 2011] [Originally Added On: December 13th, 2011]
- A retiring professor - Video [Last Updated On: December 15th, 2011] [Originally Added On: December 15th, 2011]
- Shaq's Retirement Speech -Funny- - Video [Last Updated On: December 19th, 2011] [Originally Added On: December 19th, 2011]
- Recession snatches retirement from America's workers - Video [Last Updated On: December 22nd, 2011] [Originally Added On: December 22nd, 2011]
- 5 Forbes Tips On How To Make Money During Retirement - Video [Last Updated On: December 24th, 2011] [Originally Added On: December 24th, 2011]
- Forrest Griffin Interview: Tito Ortiz, Ultimate Fighter, Retirement - Video [Last Updated On: December 25th, 2011] [Originally Added On: December 25th, 2011]
- Expert Investors On Saving For Retirement (Intelligent Investing With Steve Forbes) - Video [Last Updated On: December 25th, 2011] [Originally Added On: December 25th, 2011]
- BJ Penn on Diaz v. GSP, Retirement- INSIDE MMA Exclusive - Video [Last Updated On: December 29th, 2011] [Originally Added On: December 29th, 2011]
- Miyamoto's "Retirement", Kingdoms of Amalur Impressions, and Chrome Gaming! - Video [Last Updated On: January 1st, 2012] [Originally Added On: January 1st, 2012]
- SHAQ Announces Retirement - Video [Last Updated On: January 3rd, 2012] [Originally Added On: January 3rd, 2012]