Think You’re Saving Enough for Retirement? Think Again
Retirement savings are becoming a big deal for American workers today who are starting to contribute more towards their nest egg from an early age.
But a new study from Stanford Center on Longevity shows that the average retirement savings in American funds aren’t even close to what they should be.
The researchers wrote that Americans should be saving anywhere between 10 to 17 per cent of their income, starting from the age of 25, if they are planning to retire around 65.
But unfortunately, most future retirees aren’t even close to meeting this savings goal. Only a small proportion of workers start contributing towards their retirement fund from the age of 25 and those who do, save only 6 to 8 per cent of their annual income which isn’t nearly enough.
Stanford’s research scientist, Tamara Sims, admits that more Americans are saving for retirement today than ever before, but that doesn’t mean that they’re saving enough to enjoy the lifestyle they desire. If you look closely at average contribution numbers, Americans aren’t even saving half the amount they should be for a comfortable retirement.
Most employers are required to enroll their workers 401(k) retirement plans by default, a practice that has allowed more Americans to grow their nest egg, but some of them have become too lax about their retirement planning and aren’t making the right decisions for their future.
Changing Your Mindset
The study also showed that almost 50 per cent of the American workforce didn’t have access to a company-provided retirement plan. People who weren’t making sufficient savings in workplace retirement funds were turning to other investment avenues, although none of them came even close to the traditional 401 (k) plans in terms of saving benefits.
Sims says that the biggest reason behind people’s inability to save for retirement is the mindset that will never grow old. Most of them aren’t willing to take out a large chunk of their earnings to invest in a long-term future, and focus on instant gratification instead.
The research suggests that one technique to help people save more is visualizing old age or retirement through a computerized photo of their future self. This will help them see that retirement is a distant but inevitable reality.
There could be plenty of other reasons, apart from an apparent lack of concern for the distant future, that could get in the way of saving for retirement. For most people short-term expenses like rent, mortgage and insurance payments often become the priority whereas retirement gets shoved to the back seat.
Debt and Savings
According to a joint survey by Association of Young Americans and AARP, almost one-third of baby boomers are still struggling to pay off their student loans which is stopping them from saving for retirement. 50 per cent of the people who are still paying off student loan debt owe $30,000 or more which can make it even harder to grow their nest egg.
However, experts say that baby boomers can still save for retirement while paying down student loan debt. If you wait till you’re completely debt free to start saving, chances are that you may not be able to save enough by the time you retire.
When it comes to saving for retirement, it’s wiser to start today than leave it till tomorrow or next month – especially if you have only a decade or two before your planned retirement date. And even if you have thousands of dollars to pay off in student loan or mortgage debt, it’s still possible to put some, if not much, money towards your retirement goal.
If you currently have a debt of $30,000 and you make $500 in monthly payments to pay it down, it’s possible to split that money so that you can tackle debt and retirement at the same time. Instead of making a monthly payment of $500, consider paying only $250 and put the remaining half towards your retirement fund.
This way you could be able to pay back the loan within a decade (depending on the interest rate) but also have up to $80,000 saved in your retirement fund, if you’re invested in a 7% annual return plan.
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