According to a recent Northwestern Mutual study, the average retirement savings amount was $86,869 in 2022. This year, it’s $89,300 — a 3% increase. Along with this, the typical retirement age also rose from 62.6 last year to 65.
While the average retirement savings has increased, many people still worry they won’t have enough money to live comfortably during their retirement years. In fact, only 52% of all respondents feel confident that they’ll be financially prepared for when they retire. Meanwhile, 45% of people are concerned their savings won’t last for the rest of their lives after they retire.
This isn’t too surprising considering there’s a noticeable gap in how much the average person has saved versus how much they think they’ll need to retire comfortably.
The same study found that people between the ages of 20 and 60 believe they’ll need anywhere from $1.2 million to $1.56 million to maintain a comfortable lifestyle once they retire. Individuals who are 60 or older tend to believe they’ll need anywhere from $936,000 to $968,000. And those with a net worth of $1 million or more say they’ll need at least $3 million.
Retirement Readiness by Generation
According to the Northwestern Mutual study, the youngest generations — Gen Zers and millennials — tend to have the least amount of money set aside for retirement. However, out of everyone still working, these age groups are also the ones who feel most confident that they’ll be able to retire as planned. After all, they have the most working years left.
Approximately 65% of Gen Zers expect to be prepared for retirement, while 54% of millennials say the same. Gen Xers feel the least confident, with 45% saying they’re not prepared financially. Boomers who haven’t yet retired align more closely with millennials, with 52% of respondents concerned about their retirement readiness.
6 Strategies To Build Retirement Savings
Wherever you’re at in terms of retirement, here are some ways to prepare financially and build your savings — especially if you’re worried about falling behind.
Calculate How Much You Need During Retirement
“The amount needed for retirement varies based on individual circumstances, such as desired lifestyle, expected expenses and retirement age,” said Joe Catanzaro, financial advisor at Oak & Stone Capital Advisors. “However, a general guideline is to aim [to save] 10 to 15 times your annual income as a retirement savings goal. This estimate provides a buffer to sustain your lifestyle and cover expenses throughout retirement.”
Say, for example, you currently earn and live comfortably on $70,000 a year. You’ll need between $700,000 and $1,050,000 to maintain a similar lifestyle during retirement. If you want to start saving more aggressively, you could set aside a larger portion of your income.
“Check one of [the] many available online retirement calculators to determine how much savings you will need to pay for your retirement needs as a starting point,” said Kyle Enright, president of Achieve Lending in San Mateo, California. “You can put in different variables and see how they change what you may need.”
Start Saving and Contributing to Your Retirement Accounts Now
It’s never too late to start saving, but the sooner you start, the more you’ll have set aside when the time comes to use it.
“Delaying savings can hinder your retirement goals,” said Lucas Noble, a certified financial advisor and founder of Noble Financial Group. “Begin saving as early as possible and take advantage of compound interest. Even small adjustments made regularly can significantly increase your savings over time.”
Try to be as consistent as possible so you have an even larger nest egg for retirement. And, as your income and lifestyle allows, increase your savings amount to get yourself to where you need to be.
But don’t limit yourself to just saving.
“Contribute to retirement accounts,” Catanzaro said. “Take advantage of employer-sponsored plans like 401(k)s or individual retirement accounts (IRAs) and contribute regularly. These accounts offer tax advantages and can help grow your savings faster.”
Noble added, “Maximize your contributions to these plans before considering additional savings outside of them.”
Don’t forget about catch-up contributions. Once you reach a certain age — usually 50 — you can start contributing larger amounts to your retirement accounts for additional savings.
Create a Budget and Cut Unnecessary Expenses
“Make sure you have a budget in place, and make sure to include a line item for savings,” Enright said. “Treat savings as an expense you ‘pay’ every month. If you are behind, bite the bullet and save 15-20% or more of every check (whether you are a full-time employee, consultant, freelancer or other).”
While you’re at it, calculate your daily, weekly, monthly and yearly expenses. See whether there are areas where you can reduce costs. If so, you can put the extra cash toward your retirement funds.
Take on an Additional Income Stream or Work Longer
“There’s no magic bullet if you are truly behind,” Enright said. “You may need to rethink when you can retire from your current job. Or you may want to look at finding a new, higher-paying job — perhaps at your current place of employment — or taking a part-time job.”
Many options exist, so consider your interests, skills and goals. For example, you could take on a side gig as a delivery driver, online tutor or pet sitter. Even a few extra hours a week could increase your ability to save up for retirement.
Get Out of Debt as Soon as Possible
If you’re behind on retirement savings, debt can make it even harder to catch up. Because of this, it’s generally a good idea to start reducing your debt load — especially if you’re spending a lot of money on interest charges.
“Paying off your debt will lower your expenses and effectively get you a tax-free, risk-free return of the interest you saved,” said Jay Zigmont, Ph.D., CFP and founder of Childfree Wealth. “Once your debt is paid down, focus on maxing out any retirement accounts — 401(k)s or similar — you may have access to.”
“Many people are carrying auto loans, credit card debt and even student loan debt, for themselves or their children, later and later in life,” Enright added. “Make it a top priority to pay off this type of debt. Consider that paying off a credit card balance with an 18% interest rate is akin to earning an 18% percent return — far better than any savings fund.”
Speak With a Financial Advisor
Last but not least: Consult a financial advisor or another retirement planning expert. With their help, you can draw up a plan based on your finances and retirement goals. Your income, expenses or goals might change, but the important thing is to get started.
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