Being financially prepared for retirement is a top concern for many Americans. With more people living paycheck-to-paycheck and the cost of living and healthcare costs on the rise, many people struggle with saving for the future. To get an idea of the current savings environment, below are a few key points:
One in three American adults have $0 saved for retirement
56% of Millennials don’t have any money saved in a retirement account
61% of Americans are unsure of how much money they’ll need to fund their retirement
Alarming, right? Considering that most Americans will need at least $1 – $1.3 million to retire, and Millennials will likely need between $1.8 and $2.5 million, it's evident that most Americans aren't saving enough.
If you’re wondering how much you should be saving, it’s important to first note that each person and situation is unique. To help you assess your situation, you can start by asking yourself a few questions:
1. What can I expect my cost of living to be?
In order to fully grasp how much you need to save for retirement, it's important to have an idea of what you expect your monthly living expenses to be. Will you be mortgage-free or have a monthly rent or mortgage payment? Are you considering the cost for existing or future healthcare needs? Noting these fixed costs is a good starting point of what your monthly budget will look like.
2. How long will my savings last?
People are living longer, which means estimating retirement is more challenging. A study reported that a healthy, upper-middle-class couple who are 65 today have a 43% chance that one or both partners will live to see 95. Many retirement projections use the age of 85—which means savings need to be adjusted to consider longevity. You don’t want to end up outliving your retirement fund.
3. How much can I save now?
There is no way of knowing what will happen to interest rates, tax rates, and/or inflation in the future. However, what you can control is your present day budget. Take some time to figure out what your living costs are now so you can re-route some of your disposable income toward retirement savings. You should also re-evaluate your financial situation yearly so you can increase your contributions, if possible.
These are just a few suggestions to help you get started in evaluating your personal situation. There are an abundance of tools available online, such as projection calculators, to guide you in making decisions that are the best fit for your unique situation.
If you are looking for a diversified or more aggressive saving strategy, consider a Wealth Management Advisor. An advisor can evaluate your situation and make recommendations to help you fund the retirement you desire. They can analyze your existing (or non-existing) retirement savings strategy with your employer, or suggest options outside your employer, such as an Individual Retirement Account (IRAs) or Roth Account, for multiple savings options.
No matter your current situation, saving for the future is vital to a comfortable retirement. To learn more about the variety of retirement options available to you, visit swbc.com to learn more.