A recent survey by Fidelity Investments revealed that most Americans are unaware of how much they need to save for retirement. The survey, which polled more than 2,000 adults aged 25 and older, found that only 37% of respondents could correctly estimate their retirement savings goal. The rest either overestimated or underestimated the amount they need to retire comfortably.
How to Calculate Your Retirement Savings Goal?
According to Fidelity, a simple way to calculate your retirement savings goal is to multiply your annual income by 10. For example, if you earn $50,000 a year, you should aim to have $500,000 saved by the time you retire. This assumes that you will retire at age 67 and live until age 92, and that you will spend about 45% of your pre-retirement income in retirement.
Of course, this is just a rough estimate and may not apply to everyone’s situation. Factors such as inflation, taxes, health care costs, lifestyle choices, and Social Security benefits can affect how much you need to save for retirement. Therefore, it is advisable to use a retirement calculator or consult a financial planner to get a more personalized and accurate assessment of your retirement needs.
Why Most Americans Are Off the Mark?
The survey found that 38% of respondents underestimated their retirement savings goal, while 25% overestimated it. The average respondent thought they needed to save eight times their annual income for retirement, which is two times less than Fidelity’s recommendation.
There are several reasons why most Americans are off the mark when it comes to their retirement savings goal. One is that they may not be aware of the rule of thumb or how to use it. Another is that they may have unrealistic expectations about how much they will spend or earn in retirement. For instance, some people may assume that they will spend less in retirement because they will have fewer expenses, but they may not account for the rising costs of health care or inflation. Others may overestimate how much they will receive from Social Security or other sources of income in retirement.
How to Boost Your Retirement Savings?
If you are among the majority of Americans who don’t know how much you need to save for retirement, don’t panic. There are some steps you can take to boost your retirement savings and achieve your goal.
- Start saving as early as possible. The sooner you start saving, the more time your money has to grow and compound. Even if you can only save a small amount each month, it can make a big difference in the long run.
- Increase your savings rate gradually. Try to save at least 15% of your income for retirement, including any employer match. If you can’t afford that much right now, start with what you can and increase it by 1% every year until you reach your target.
- Take advantage of tax-advantaged accounts. Saving for retirement in a 401(k), IRA, or other tax-advantaged account can help you reduce your taxes and grow your money faster. Make sure you contribute enough to get the full employer match if you have a 401(k), and consider maxing out your annual contribution limit if you can.
- Review your portfolio regularly. Make sure your portfolio is well-diversified and aligned with your risk tolerance and time horizon. Adjust your asset allocation as you get closer to retirement to reduce your exposure to market volatility and preserve your capital.
- Seek professional advice. If you are unsure about how much you need to save for retirement or how to invest your money, consider working with a financial planner who can help you create a customized plan based on your goals and circumstances.
Retirement planning is not a one-size-fits-all process. It requires careful research, calculation, and adjustment. By knowing how much you need to save for retirement and taking action to achieve it, you can secure your financial future and enjoy your golden years.