Many Americans are facing a retirement savings crisis, with nearly half of households having no savings in retirement accounts. A majority of Americans are concerned about achieving financial security in retirement, with many unsure of how much they will need. However, it is important to focus on taking action now to catch up on retirement savings rather than dwelling on past mistakes.
Three key elements to building a solid retirement savings plan include living below your means, starting to save, and starting to invest. Using a benchmark of $1 million for retirement savings, individuals can calculate how much they need to save each year based on their age and expected investment returns. For example, a 40-year-old hoping to retire at 60 would need to save around $30,243 annually with a 5% return, while a 50-year-old might need to save $46,342 each year.
Employer 401(k) plans often offer opportunities for additional contributions from employees over the age of 50, known as “catch-up” contributions, which can turbo-boost retirement savings. It is also important to consider other potential sources of retirement income, such as Social Security payments, pensions, rental properties, and part-time work. Downsizing or relocating to a more affordable city can also help reduce living expenses during retirement.
While it may be a daunting task to catch up on retirement savings later in life, there is still hope for a financially secure retirement with careful planning and dedication. Regardless of where individuals are in their retirement savings journey, the key is to take action and start implementing a plan. By making smart financial decisions and exploring all available options for generating retirement income, most individuals can still achieve a comfortable and fulfilling retirement.
