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Editor’s Note: This article first appeared on SmartAsset.com
When it comes to saving for retirement, American workers have a lot of work ahead of them.According to a recent survey by the Insured Retirement Institute, workers aged 40 to 73 have insufficient retirement savings to cover their income needs, and they aren’t saving enough to catch up.The online survey, conducted in March 2021 and involving 990 workers, sheds new light on low savings rates, unrealistic retirement income expectations, and a widespread lack of basic retirement planning.
Savings Rates Aren’t High Enough
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The retirement savings shortfall in America is caused by two main factors.
To begin with, there aren’t enough people who are actively saving for retirement.One out of every four workers polled has no savings at all, confirming a finding from a recent PwC study.
Second, those who are saving for retirement are simply not saving enough.According to the IRI survey, 51% of workers have less than $50,000 in savings, while only 20% have more than $500,000.Only 8% of people have at least $1 million in savings.
Workers were also asked how much of their salaries they are saving for retirement in the IRI survey.While 57% of respondents said they save less than 10% of their income, a third said they save less than 5%, well below the 10% to 15% that experts recommend.
According to the study, even the youngest savers’ savings rates are insufficient to grow their nest eggs to a level sufficient to meet their income and budget expectations.With 60% of respondents earning less than $100,000 per year and saving less than 10% of their income, prospects for a secure retirement appear bleak.
Income Expectations That Aren’t Realistic
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The IRI survey also discovered that workers over the age of 40 have unrealistic retirement income expectations.Despite a general lack of confidence in having enough income in retirement (only 44% said they are confident), many workers have high retirement income expectations.In fact, 58% of respondents believe they will require at least $55,000 in annual retirement income, with 35% requiring at least $75,000.
According to the study, a surprisingly high percentage of workers expect to need annual retirement income in excess of $75K in today’s dollars.This is remarkable because, as previously stated, they are not saving and have not saved nearly enough to meet that goal.
A widespread lack of retirement planning was one of the most eye-opening findings from the IRI survey.Only 4 out of 10 people said they’ve tried to figure out how much they’ll need in retirement to meet their goals.In fact, only 36% of respondents aged 62 to 66 have attempted to calculate this figure.
Some people may have pensions.According to the study, some people may believe they will work until they are well past retirement age or that they will continue to earn income in retirement.However, for those who do not have these plans, knowing how much money can be saved is crucial.
What You Can Do to Make a Difference
The simplest and most direct answer to the question of how to improve one’s retirement prospects is to start saving earlier in life.In fact, 67% of survey respondents said they wished they had started saving sooner, making it the No. 1 regret.1 regret expressed by participants
Putting money aside for retirement early in your career can have a big impact on your future savings.Consider the difference between a 25-year-old earning $50,000 per year and a 50-year-old earning $100,000 per year in retirement savings.Both employees contribute 10% of their annual income to their 401(k) plans, but the younger employee has far more time to save.
Even if the older worker has saved $50,000 for retirement by the age of 50, his or her 401(k) account will be worth just over $400,000 by the age of 65.The 25-year-old, on the other hand, has twice as much time to accumulate and earn compound interest on his or her contributions.The 401(k) of a 25-year-old will be worth more than 1 million dollars.1 million by the age of 65, emphasizing the value of time in the market.(Many retirement planners estimate that the average 401(k) portfolio generates a 5% to 8% annual return, so both scenarios assume a 6 percent annual return.)Return on investment of 5%)
- 50,000 dollars in profit
- The contribution is 10%.
- Existing retirement savings (in thousands of dollars) 0
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- Earnings of $100,000.00
- The contribution is 10%.
- 50000 dollars in retirement savings
- Savings for retirement at the age of 65 401030
Alternatively, if saving earlier in your career is not an option, extending your career may be.While 30% of survey respondents expect to retire before the age of 65, working into your late 60s can help you supplement your retirement savings.Delaying Social Security for a few years could also be an option.Although you will need to do your own break-even analysis to determine the best time to claim Social Security based on your life expectancy, doing so will increase your annual benefit.
When it comes to retirement planning, a large percentage of American workers over the age of 40 appear to require assistance.According to an IRI survey conducted earlier this year, one out of every four workers has no retirement savings, and only 40% of people have attempted to calculate how much they’ll need.The comparison of the 25-year-old and the 50-year-old demonstrates the importance of saving early in one’s career.
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