Retirement: Are You Saving Enough?
In recent studies among Americans, most worry that their savings will not last in retirement. Its an overwhelming scary thought to face. Generally, the average American household will spend more than $40,000 per year in retirement according to the Bureau of Labor Statistics. Yet, the average American person only collects less than $17,000 in Social Security. Let us ask you, are you on track to make up this huge difference with your current retirement savings?
It may be useful to consider your savings progression in achieving financial freedom for your retirement years compared to those of your peers. With 2017 seeing a better economy, American workers have had more out-of-pocket money to set aside in their retirement accounts and portfolio. Because of the strong stock market performance over the course of this past year, Americans have seen a strong boost in their 401(k) balances and IRA accounts. In fact, according to Fidelity Investments, the average 401(k) balance increased to $104,300 last quarter, up 13% from one year ago. The average IRA account balance similarly soared, climbing 13% to $106,000. Account holders who’ve had their 401(k) open in each of the past 10 years saw their account balance climb to $286,700, a 22.6% gain; 401(k) accounts for investors who’ve invested in 15 consecutive years jumped $68,600 in 2017. That’s more than many American workers earn in a year!
The main reason investors are gaining so much money from the stock market’s strong performance is quite simple: Investors continually contribute to their retirement accounts both in good times and in bad. While that sounds like a wedding vow, the truth is, most Americans don’t follow that same formula when contributing to their retirement accounts. According to Employee Benefit Research Institute (EBRI), “Only six out of every 10 workers are saving for retirement, and only one in 10 workers has prepared a formal plan to ensure financial security in retirement.” Fidelity’s analysis finds that only 30% of 401(k) savers increased the amount they’re contributing to their retirement plans in 2017. Were you in that group of 30%?
If this is all resonating and alarming and you find yourself falling into the 70%, there is still time to correct course and take action! According to Fidelity, the typical worker is contributing 8.6% of his or her income to a 401(k) plan. But, contributing 10% to 15% of your income will give you the best shot at covering your monthly expenses in retirement. If 10% contributions to your 401(k) plan seems rather high, its suggested you increase your rate in smaller amounts every year until you get to the 10% contribution. This will help you set goals while not overhauling your current budget.
If you’re contributing 10% or more to your retirement savings, but you’re still not investing the maximum amount possible in your 401(k) plan or IRA, you could be missing out. In 2018, workers can contribute up to $18,500 to a 401(k) or 403(b) plan. That’s $500 more than in 2017. If you’re age 50 and up, catch-up contributions allow you to contribute up to an additional $6,000, too.
While not every American is able to contribute the maximum amounts, try to increase your contributions by whatever amount you are financially capable of doing.