Saving for retirement is one of the most important undertakings of adulthood. Yet few people know how much they need to retire, making it hard to understand whether they are saving enough throughout their working years. This puts people at risk of undersaving for retirement, which could help explain why the average retirement age in the United States has risen from 57 in 1991 to 62 today.
Age 62 is also an important milestone: Americans can begin claiming Social Security at that age if they meet the requirements.
Social Security alone isn't a retirement strategy. Therefore, people should understand how much they might need to retire comfortably and plan accordingly. Check out below what the experts believe workers should have saved by 62 and some tips to help you meet your goals.
Here is what the experts at Fidelity say
According to experts in an article published by Fidelity, one of America's largest retirement plan administrators, you should have between eight and 10 times your pre-retirement income by your early 60s. The median U.S. household income is approximately $80,000, so the typical person should have between $640,000 and $800,000 saved by then.
Of course, this isn't cut and dry; you might need more or less depending on variables such as where you live, your lifestyle, etc.
Unfortunately, many people are failing to meet this mark. According to a 2022 Federal Reserve survey, the median nest egg is only $200,000 for those aged 65 to 74. It's clear that far too many people aren't just undersaving for retirement; they're not even close to where they should be.
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3 tips to get your retirement savings on track
The good news is that there is always time to improve your situation, even if you're behind where you'd like to be. No, someone starting from scratch at age 50 might not end up as wealthy as someone who started saving at 25, but they can still save enough money to afford basic needs. Consider utilizing these simple tips to get your retirement savings back on track.
1. Utilize your employer's retirement plan
Most working people have access to a retirement plan through their employer. Federal government employees may have a Thrift Savings Plan, while those working for companies might have a 401(k). There are others, but these are among the most common. These two plans (traditional) involve pre-tax contributions from your salary that can reduce your taxable income during your working years. This means you pay taxes on your retirement distributions instead of when you initially put the money in.
They have high contribution limits, making them especially useful for people trying to save significant amounts. Some companies offering 401(k) plans will even match some of your contributions, which is an easy way to boost your retirement savings. The 401(k) is my favorite retirement plan and what I'm using to build my nest egg.
2. Get your financial house in order
It feels like living is more expensive than ever these days, especially if you have children. Everyone's finances are different, but everyone should spend time and effort budgeting and planning where their money goes. You can pay for almost anything on auto-pay these days, and even basic television has evolved to the point that you could have a dozen streaming subscriptions. Most people probably don't realize how much all those charges can add up to.
There's a good chance that there's room to trim monetary fat from your household, and it's probably the first thing you should try if you're struggling to put the monthly funds away you need to reach your goals. Pay off and avoid high-interest debt like credit cards, which can put people in a financial hole that chews up their extra income.
3. Keep your investments simple
Your investment options might depend on your retirement account type. Whatever your choices, keep your investments simple. Most people only need a diversified portfolio of mutual or index funds to build long-term wealth. Keeping your money in a savings account (or something similar) will probably leave money on the table because it's not a high enough return to let compounding do its best work for you. But take too much risk, and you might face permanent losses or volatility that scares you into doing something you regret.
An S&P 500 index fund or large-cap mutual fund is an excellent pick because it will heavily lean on well-established companies that give you solid upside but a low chance of disaster. When it comes to your life savings, protecting your money is just as important as making more.
