I can’t stop thinking about a recent Washington Post article on saving for retirement.
Two thoughts in particular stopped me cold — first, the situation most workers are in today:
In the wake of the recession, the Employment Benefit and Research Institute found that, among other things, fewer workers are saving for retirement, a quarter of those surveyed have nearly no savings (i.e., less than $1,000), most workers don’t know how much they’ll need to retire and more than half say their total savings is less than $25,000.
Next, the cold hard facts of how far that puts them from where they need to be:
… without a pension, how much do you need to get $50,000 (before inflation) each year? Simply put: a bundle. If you plan to retire at 65 and hope to have at least 30 years in retirement, you’ll probably need something like $1.5 million in today’s dollars. Even a little inflation could push that to $3 million if you’re two or three decades from retirement. For the moment, let’s leave inflation out of the calculation.
In other words, if you have saved just $25,000 — and remember, that describes about half of all workers — you are less than 2 percent of the way toward your goal.
If the writer’s goal was to get my attention, it worked. Read the full article here.
I’m a little smug about retirement savings. My mom nagged me into starting a 401(k) when I was only a year out of college and convinced me that the best way to start saving is to boost the contribution every time you get a raise — it’s money you aren’t used to having so you won’t miss it.
But it gives me pause to think how far we have to go to hit $1.5 million, much less $3 million in savings.
And what about our peers who have nothing set away? Or who might have been doing reasonably well until the stock market wiped them out?
Since I love Excel, I played with some scenarios. I varied the expected age of retirement, the amount already saved and the end savings goal to see what happens to the annual target.
(Expand your browser window to see all four situations)
| Age today | 30 | 40 | 45 | 50 |
| Age when you hope to retire | 65 | 70 | 65 | 70 |
| Years until retirement | 35 | 30 | 20 | 20 |
| Amount you have saved | $50,000 | $500,000 | $100,000 | $1,000,000 |
| Amount you would like to have at retirement | $1,500,000 | $1,500,000 | $1,500,000 | $2,000,000 |
| Amount you still need to save | $1,450,000 | $1,000,000 | $1,400,000 | $1,000,000 |
| Amount to save per year | $41,428.57 | $33,333.33 | $70,000.00 | $50,000.00 |
These numbers are crude, of course. They don’t take into account the effects of compound interest, for example — but they also don’t allow for losing your shirt in a stock market plunge.
Nor do they include saving to send the kids to college. These are just the numbers for your retirement. College tuition, a vacation home or anything else you’re saving for would be in addition.
My takeaway: under almost every circumstance, we need to step up our savings or we’re headed for a serious national crisis. Either we’ll have a generation unwilling to retire to make way for new workers or we’ll have people teetering on the brink of bankruptcy when the paychecks stop.
Or maybe the answer is what the Health and Retirement Study suggested — that we shouldn’t stop working.
How are you doing saving for retirement? Do you have any tips for making your future finances a priority?