It’s worse than you think: The alarming state of Americans’ retirement savings

If you’ve been sitting on the fence when it comes to saving for retirement, it’s time to wake up. And no, it doesn’t matter if you’re not yet in your forties, thirties, or even 25. You need to be putting money aside for your golden years, and probably more than you thought you did.

How much does it actually cost to retire?

Life expectancy nowadays dictates that most Americans should plan for at least 20 years of retirement. It may actually be even longer: One in four seniors today will live past the age of 90, and one in 10 will live past 95. This optimistic (but feasible) outlook leaves us with a bill for 30 years post-retirement. Thirty years is a long time to endure financial stress, along with the other challenges posed by old age.

What’s more, saving for a rainy day is enough of a challenge for many, that adding annual retirement savings can almost seem like a fantasy. Without the ability to accurately predict the future, it’s easy to be confused as to when you’ll need your money most: now, or later. If you’ve approached retirement savings as a luxury up to this point, we’re here to ring the alarm.

The average cost of healthcare after retirement currently stands at $400,000. If you break that down to 20 years, that comes out to $20,000/year. If you ‘only’ live to today’s average US life expectancy, it’ll come out to between $23,000 and $26,000 per year. Today’s retirees spend, on average, $30,000/year on housing, food, transportation and clothing. Despite that, the average American aged 65 years or older has a 401(k) valued at just $60,000.

When accounting for just the basics referenced above, you’ll need over $50,000/year in retirement, and that’s by today’s calculations. Naturally, as a senior who’s paid their dues, you won’t want to settle for the bare minimum – you’ll hopefully have the chance to travel, exercise, regularly enjoy entertainment and even help your children and grandchildren financially. If the past is any indication, don’t hold your breath for massive decreases in cost of living. Anyway you slice it, if you’re not 65 as we speak, and/or if you live in a city with above-average cost of living, you need to set aside over $75,000 for every year of anticipated retirement, or $1,500,000 overall.

There’s still time to catch up

If you’re experiencing sticker shock, we don’t blame you. One and a half million dollars is actually attainable thanks to the magic of compound interest – and even if you have a late start saving for retirement, you can still catch up. It might not be easy, but peace of mind at old age is more than worth it.

Follow this plan

1. Max out your savings: If you’re under 50, the maximum amount you can contribute annually is $23,500: $18,000 to a 401(k), and $5,500 to an IRA. These figures include employer matching – so if you haven’t taken advantage of that yet, what are you waiting for?

To save the maximum, this means setting aside nearly $2,000 each month, and that’s without accounting for other savings. While not everyone can afford to contribute quite that much to their retirement savings, set a personal goal for yourself. Whatever you manage to save currently, aim to double it within one year. If you’re not saving anything at the moment, aim to finish 2018 with at least $5,000 contributed to both your 401(k) and IRA accounts. Then, in 2019, double it to $10,000. Need tips on increasing your income and savings? Luckily, we have those here, here, here and here.

2. Divide and conquer: Once you’re contributing at least $5,000 annually to your 401(k) and IRA funds, begin investing with as little as $3,000 per year. There are plenty of lucrative investment options to choose from – all it takes is the patience to see it through to grow by the time you’re ready to retire. With an average annual return of 8% (considered realistic), you could accrue well over $700,000 for retirement if you allocate just $300 a month starting in your early thirties. That alone gets you half of the way to our magic number of $1,500,000.

3. Automate what you can: Don’t rely on your willpower to get you to retirement financially sound, take advantage of automation technology to help you stay on track. By automatically transferring funds to savings, you’ll have a nest egg to fall back on in case of an unforeseen expense. This will, in turn, save you from having to borrow money from friends, family, a bank or even break into your 401K/IRA retirement savings. Even though the latter is composed of money you personally saved, loans and early withdrawals against retirement savings come with rules and tax penalties.

For extra automated savings you didn’t even know you could save, Change offers a genius Auto Saving tool. The algorithm detects available money in your account and saves it automatically on your behalf, so it never feels like you have excess to spare. What’s more, you can earn up to 3% interest on the money you save through Change – the highest interest rate offered by any financial institution in the US.

We wish we could have written this post without sounding quite so alarmist, but unfortunately, the vast majority of Americans have less than $1,000 saved for retirement – if that. Don’t become part of this grim statistic, we can almost guarantee things won’t just fall into place as the years go by, and old age poverty is no walk in the park.

Get your act together in 2018 and don’t postpone your retirement savings any longer. Every year counts, before you’re 67.