What’s your target retirement date? For many people, the answer may be “I don’t have one.” Saving money for retirement is something we all know we should be doing. But like so many other things in life, it’s easier said than done.
According to a recent survey conducted by Freedom Debt Relief, 60% of American households are saving less than $1,000 per year for retirement. What’s even more shocking is that 41% of households say they aren’t saving any money at all.
It’s not that Americans don’t want to save for retirement—they just can’t. According to the survey, 32% of Americans say that everyday expenses are the biggest barrier they face when trying to increase their savings. 17% said that their debt was getting in the way of their savings.
With so little being saved each year, retirement may just be a distant dream for most. In fact, 45% of people surveyed were so detached from their retirements saving goals that they didn’t even check their pay roll stub last month to see their progress.
So how much should you be saving to make sure you hit your target retirement date? What tools and resources should you use to make sure you’re doing it right? We asked retirement expert Barbara Friedberg these questions and more. Here’s what she had to say:
So, how much should you save for retirement?
Many factors go into saving for retirement including your age, cost of living, and additional income sources.
If possible, it’s best to save 15% of your income for retirement. If that doesn’t work for you, try 10%, or even 5%. Any amount of saving for retirement is better than not saving! If you want a simple set of retirement saving guidelines, Fidelity has a recommendation.
A simple retirement saving calculation is to estimate your annual living expenses. Then subtract the income you’ll receive from Social Security. The difference is the amount of money you’ll need each year from your own savings.
A retirement calculator is helpful to figure out the amount you’ll need to save.
Here’s an example:
Common wisdom suggests you can withdraw 4% from your savings in retirement. So, if you need $30,000 to supplement Social Security, and you start retirement with $500,000, earn 6% annually from your retirement investments and withdraw $30,000 per year you’ll have $250,000 remaining for your heirs in 30 years.
When should you start saving?
Now. Time is the most important factor in building wealth for retirement.
Consider your money like a snowball at the top of a hill. And the investment income is the snow that builds as the ball rolls down the hill.
The longer the snowball rolls, the bigger it gets.
The same is true of your retirement savings.
Start saving and $5,000 per year age 25 and earn 7% return on your investment. At age 65 your retirement account is worth $1.068 million.
Wait until you’re 45 to begin and you’ll need to save over $22,000 per year to end up with $1 million at age 65 (assumes a 7% rate of return).
What tools should you use to make sure you’re on track?
There are so many great apps and assists to help with retirement savings today.
Here are a few of my favorites.
Robo-advisor apps are low cost ways to invest for the future that take the stress out of managing your investments on your own.
In order to be a good steward of your money, you must keep track of what you have and what you spend. You can use the free Mint.com for a basic budgeting and saving app.
If you have home equity but no retirement savings, should you be worried?
It’s not helpful to worry about the woulda coulda shouldas.
What’s most important is to start today and put as much as you can into your workplace 401(k), Roth IRA, Traditional IRA, or an investment brokerage account.
What are your tips for people who are just starting to save for retirement?
Automate your retirement saving. That means have a portion of your income withdrawn from you paycheck to go directly into a 401(k) and/or retirement account.
Take a risk quiz to find out how much to invest in stocks vs bonds.
Continue to invest during the market ups and downs.
Increase retirement investing with each pay raise.