Is the Retirement Savings Gap Closing?

Good news! More people are expressing confidence in their ability to meet their income goals during retirement. According to the Employee Benefit Research Institute’s (EBRI) Retirement Confidence Survey, 28 percent of people with a retirement plan are very confident they will be able to retire comfortably.

That figure has essentially doubled since 2013. However, those without a retirement savings plan have not shown a statistically significant change in their retirement outlook with only 12 percent expressing retirement confidence in 2015 (compared to 10% in 2013). This annual study reinforces the importance of having a retirement savings plan.Here are some other highlights from the 25th annual Retirement Confidence Survey along with ways to use this information to change your own sense of retirement confidence:

57 percent of workers surveyed have less than $25,000 saved for retirement. Curious to know how your combined retirement plan balances across 401(k)s, IRAs, and other retirement accounts compare to others? Here is a general breakdown of the savings excluding any home equity or employee benefit plan assets:

  • Less than $1,000: 28 percent.
  • $1,000 to $9,999: 17 percent.
  • $10,000 to $24,999: 12 percent.
  • $25,000 to $49,999: 9 percent.
  • $50,000 to $99,999: 10 percent.
  • $100,000 to $249,999: 10 percent.
  • $250,000 or more: 14 percent.

Determine how much you should be saving for retirement. Most financial planners recommend setting a savings target of 10-20% of your income if you’re saving throughout your career. If you want to compare your retirement savings to age-based benchmarks, Fidelity conducted a study estimating ideal retirement savings amounts at certain ages. In order to retire at age 67, you would ideally want to have 1 times salary by 35, 3 times salary by 45, and 5 times salary at age 55.

Voya uses a similar approach with its own My Savings Score tool. The projected retirement age is also 67 but the assumptions are slightly different. The Voya tool includes a table that includes all different ages. All you have to do to calculate your income multiplier is divide your total retirement savings (401k, IRAs, lump sum pensions, piggy banks, etc.) by your current income.

Comparing our savings to others and using age-based benchmarks is a great concept if you are into the “Keeping up with the Joneses” approach to retirement planning. Since nobody reading this blog post is average or merely a statistic, take the next step in your retirement planning efforts by using a retirement calculator. Which brings us to…

Set aside time to actually think about and plan for retirement. The survey found that more people spend 8 hours or more in a year planning for the holidays than they do for their own retirement. Only about one-third of workers surveyed spend 8 hours or more per year planning for retirement.

If you aren’t one of those planner types, try to set aside about 10-15 minutes to run a basic retirement calculation and do this at least once per year. See How much income will you really need for retirement for more guidance on estimating your retirement income goals. If you aren’t sure, start with an initial goal of replacing at least 80% of your current income.

Find extra money to save in your budget. Over two-thirds of survey respondents said that they could save an extra $25 per week. The popular areas of savings were eating out (46%), soft drinks and vending machines (13%), movies, DVDs, and streaming (12%), and specialty coffee shop visits (11%).

That $25 weekly boost to retirement savings would grow to just over $75,000 in 25 years at a 6% growth rate. In 35 years, that small cutback would amount to almost $155,000. If you want to take steps to make sure that extra $25, $50, $100, or $200 finds its way into your retirement accounts and not into the mysterious “where the heck did it go” account, automate your savings. 401(k) contributions are easy and convenient because you do not have to make a “save or spend” decision each time you get paid. You can also set up automatic contributions to IRAs and other investment accounts.

The best way to identify ways to save is to review your spending plan on a regular basis. Just last month, our family cut the cord on the cable company and cancelled an online music streaming service we were no longer using. Boom!!!  An extra Benjamin Franklin was just located in our budget and immediately told to hang out in an IRA.

Check out these Easy Spending Plan and Expense Tracker worksheets and see if you can find some extra money. You can use this (Mostly) Painless Ways to Save Money guide to get started. Another alternative is to use automatic spending plan systems like Mint, Yodlee, and Personal Capital to identify areas where extra retirement savings can be found.

Retirement confidence may be increasing but many of us need to take some extra steps to continue moving the needle in the right direction. No matter how near or far that retirement destination may seem, you can get in the game and start making those changes today. What are you waiting for?

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