A lack of retirement savings may force many middle-class Americans to cut back their lifestyles later in life, according to a recent study from Wells Fargo & Co. The study revealed the average American has saved less than 7 percent of his or her desired retirement nest egg. As a result, retirees will likely have to keep working into retirement to supplement their income.
Middle Class Falls Short on Retirement Savings
The study found that despite the fact that most middle-class Americans (those with $40,000 to $100,000 in household income or $25,000 to $100,000 in investable assets) think they need at least $300,000 to fund their retirement, on average they have only saved $20,000.
Even more shocking, respondents ages 50 to 59 had saved an average of only $29,000 for retirement–well below what they would need in a few short years.
More than one-third of respondents believed that they would have to work during retirement to make ends meet, while many thought that Social Security would fill the gap.
With Social Security in the red and many unsure of what funds will actually be available in 20 years, it’s a good idea for retirees to get as much independent saving done as possible. The study found, however, that most respondents didn’t know how to figure out how much money they needed to live on in retirement or how to pick investments for their 401(k).
Tips for Building Retirement Savings
Unless you’re at the beginning of your career, having only 7 percent of your desired nest egg could put you in a difficult financial dilemma once you retire. However, it’s not too late to start increasing your savings. Here are a few options to consider:
- Increase your contributions: One great way to increase your retirement savings is to contribute more to your 401(k) accounts. The limit is $16,500 for 2010 with investors 50 or older being able to make “catch-up” contributions that bring their total to $21,500. If you’re not sure of how much to invest, use this retirement calculator to help you out.
- Diversify your investments: You might consider adding riskier investments to your portfolio by having a mix of stocks, bonds, mutual funds and more. By diversifying your investment options, you improve your chances of increasing your savings faster.
- Cut back on expenses: For example, eating out regularly or subscribing to magazines you don’t read are expenses you could eliminate and instead add to your savings. By taking a close look at what you’re spending, you might find that many of your expenses can be reduced or eliminated altogether.
It is very possible to build your nest egg, even in a tough economy. Of course, the best age to start investing is as early as possible, but no matter when you start, you have a chance to give yourself at least some of what you will need when you reach retirement.
