Worried About Retirement? You May Be Better Off Than You Think

The idea of retirement can spark a lot of mixed emotions, from excitement and joy to fear and anxiety. Sadly, a lot of those negative emotions stem from worry about money and health. More than half of the respondents in a recent Gallup poll believed they would struggle financially in their old age.

The great news is that there's a big gap between perception and reality. In the run-up to retirement, millions of us worry we won't have enough money. But the survey shows that once people actually stop working, the majority of Americans find they're able to live comfortably.

Almost 3 in 4 retirees say they're doing fine

This mismatch between perception and reality is nothing new. Gallup's been analyzing people's retirement outlooks for over two decades, and it's a consistent trend. Indeed, the data shows that many of today's retirees -- who are doing OK -- thought they wouldn't be 20 years ago.

Gallup's most recent data shows:

• The perception: 45% of non-retired Americans expect they'll have enough cash when they retire.
• The reality: 74% of retired Americans say they have enough money to live comfortably.

What's behind this disconnect? It certainly is not that people's brokerage accounts and 401(k) investments performed better than they'd hoped. Just 29% of retired Americans view their investment accounts as a prime source of income. That contrasts sharply with the expectations of 50% of non-retirees.

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On the flip side, Social Security has proven much more valuable than people thought. While 58% of retired Americans say this is a major income source, just 35% of non-retirees expect to rely on that money when they retire. Finally, some retirees downsize, so their living costs are lower than expected.

Three ways to ease your retirement fears

A lot of people don't have a clear idea of how much money they'll need in their golden years. If you can shine some light on your retirement planning, it will feel a lot less scary.

1. Calculate your retirement needs

People's lives are so different that there's no one-size-fits-all retirement target. However, there are a few ways you can come up with a ballpark figure that matches your lifestyle. For example, financial planners suggest you'll need about 80% of your current income once you retire. You can play with this figure depending on things like your current housing, travel, and other costs.

Let's say you're a couple with a total income of $150,000. If we went with 80%, you'd need $120,000 a year -- $10,000 a month. The next step is to look at your retirement income sources. For example, you can go to the Social Security website to find out how much you can expect to receive.

Hypothetically, you might get $3,000 from Social Security, $2,000 from rental income, and another $1,000 from a pension or annuity. In that scenario, you'd need to generate $4,000 a month from your investments and savings.

Another financial rule of thumb called the 4% rule comes into play. Without going into too much detail, it means your nest egg needs to be big enough to cover a 4% withdrawal in your first year of retirement, and then adjust it for inflation every year after that. In this case, we'd want $48,000 ($4,000 per month) -- which would mean having $1.2 million in our retirement funds.

2. Use tax-advantaged retirement accounts

Tax breaks can really help you reach your retirement goals. If your workplace has a 401(k), find out how it works. Many employers match contributions, which translates to lower taxes and extra money for your old age. If that isn't an option, look into IRAs. A traditional IRA will reduce your tax bill now, while a Roth IRA can mean tax-free withdrawals when you're older.

Some top brokerages also offer IRA matching. For example, Robinhood will match 1% of your IRA contributions. If you sign up to its premium Robinhood Gold service, the low-fee brokerage will match 3% of what you put in. WARNING SCL [brokerage slug=robinhood field=apply_url] does not generate a link. Anchor tag will not render in production.Click here to learn more about how Robinhood will help you invest for retirement.

3. Invest a percentage of your paycheck

It's never too late to get into the habit of investing. If you've got time on your side and can invest even a small proportion of your paycheck, you'll likely be well-positioned for retirement. To give you an idea, the S&P 500 has historically generated annual returns of 8% since 1928. We can use that as a rough benchmark for stock market performance, but keep in mind that past returns don't guarantee future returns.

If you invested $200 a week, your portfolio could be worth almost $1.2 million after 30 years. You'd have put aside just over $310,000 and compound interest would work its magic on the rest. If you have less time, the math changes. You'd likely need to invest more to reach your retirement goals.

Bottom line

There are a lot of doom and gloom headlines around retirement readiness, so it's great to learn that many of us are in better shape than we fear. Ultimately, knowledge and action are the best antidotes for anxiety. If you worry about your retirement, sit down and work out what you'll need. Then you can plan how to get there.