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A recent study found that 61% of Americans don’t know how much money they need to retire. This concerning statistic highlights a major problem with retirement savings in the United States. A huge number of Americans have little to no retirement savings despite advice to stash away cash for a comfortable future. Let’s look at some important retirement savings rules to make sure you are not part of this scary statistic.
Americans don’t know how much money they need for retirement
A new study from Bankrate found that six in ten Americans do not know how much money they need to retire. With a large wave of Baby Boomers reaching their golden years and preparing to leave the workforce, millions of Americans may be in for a big surprise when the regular paychecks stop flowing in.
While Social Security or an increasingly rare pension plan can offer a safety net to aging Americans, most of us need much more than we will get from the government to maintain the same standard of living in retirement.
The study went beyond asking what people need to retire. Older Americans fared slightly better than Millennials in the survey and fewer than 2 in 5 non-retirees indicated that they feel their retirement savings are not on track.
Using the 15% rule to save for retirement
To avoid a ramen diet in retirement, you should follow best practices for retirement savings today. That may include contributing the maximum allowed amount to an IRA or Roth IRA in addition to participating in an employer-sponsored retirement plan like a 401(k).
One quick and easy option to meet your retirement needs is to save at minimum 10% to 15% of your gross income (that’s your income before taxes and deductions). This is easy to do automatically in most employer retirement plans.
To reach the maximum $5,500 per year in an Individual Retirement Account (IRA) or Roth IRA, you should save $211 per pay period if paid every other week to reach the target savings rate at the end of each calendar year.
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If you make $50,000 per year, that means you should save $7,500 per year, or $625 per month, at the very least to maintain the same quality of life in retirement. But remember that this is just a minimum. You can save far more for retirement if you choose!
Calculate your actual retirement needs
While saving 15% or more for retirement is a good estimate on how much to save, you should do better and estimate your actual financial need in retirement. This is a tricky thing to calculate with a ton of accuracy, as you have to estimate your retirement date, how long you will live, and how much you need per month to get your total number.
Lucky for you, a Ph.D. is not necessary to calculate your retirement need. There are a handful of useful tools that make it easy and quick to estimate your financial requirements for retirement.
This in-depth calculator from AARP gives you detailed results on your retirement readiness. The Kiplinger calculator gives you a quicker result in estimating your retirement needs, but with a little less detail.
You control your retirement destiny
If you are behind on saving for retirement, there is no one to blame but yourself. But don’t dwell on the past and savings that have yet to take place. Instead, focus on the future and boosting your retirement savings starting today. That is the only way you will get on track to reach your retirement goals.
It may seem like a long way off, but your retirement is just around the corner in the scheme of things. Take the steps you need now so you don’t end up in a difficult situation in retirement. Many older Americans find themselves stuck working in retirement or skimping at home to make ends meet. Even if you can’t start by saving a full 15% of your income, you can start with something. Some retirement savings apps let you start with as little as $1 or $5!
Start saving and get yourself on track for your dream retirement. Your future self will thank you.