Editor's pick: Originally published June 16.
If you're having a tough time figuring out how much money you'll need to retire, sometimes just having an arbitrary starting point can be helpful.
Increasingly, however, committing 15% of one's savings to retirement seems less like an arbitrary decision and more like a sound strategy.
According to the advisors at T. Rowe Price, saving 15% of your earnings -- including employer contributions -- starting at age 30 can earn you upwards of $1.7 million by the time you retire. Now, that assumes 7% annual returns on your investments, a $50,000 starting salary at age 30, a 3% annual salary increase, a 4% annual withdrawal rate beginning at age 65 and 3% annual inflation.
It also assumes that you wouldn't forfeit about $570,000 by saving just 10% a year.
But what if you aren't that young and haven't really put away a whole lot for retirement?
Don't worry. For folks who begin socking away 15% at age 45, that still adds up to $457,000 based on those same variables. That's helpful, since a recent Google survey study conducted by GOBankingRates indicates that 33% of U.S. workers say they have no retirement savings. Another 23% who have less than $10,000 saved. According to GOBankingRates survey responses, J.P. Morgan Asset Management checkpoints and Census Bureau data on median incomes by age range, a 30-year-old making the median $54,243 should have about $16,273 saved. However, roughly 67% of workers that age are well behind that goal.
Considering that 75% of workers over 40 are behind on their retirement savings, according to GOBankingRates, they can use any help they can get. Even throwing 15% of income into 401(k) and IRA accounts, paying down debt and using the catch-up provisions that allow for bigger contributions to retirement plans by people over 50, can help investors salvage their retirement.
"There are plenty of obstacles Americans claim are in their way when it comes to saving for retirement: credit card debt, student loan debt, low wages, the need to save for a child's college education, and the list goes on," says Cameron Huddleston, life and money columnist for GOBankingRates. "Although all of these things can put a strain on our budgets, they don't necessarily make it impossible to save for retirement."
If there's one thing advisors agree on, it's that Americans aren't doing enough to save in general. Last year, a study by financial services firm Edward Jones found that 45% of U.S. workers haven't begun saving for retirement. Of that group, only 36% plan to do so in the future and almost 10% say they never plan on saving for retirement.
That former number includes 58% of workers 18 to 34 who have not even started a retirement fund, which GOBankingRates and J.P. Morgan says should happen by age 24.
"When it comes to retirement savings, there's a big difference between planning to save and actually doing so," said Scott Thoma, principal and investment strategist for Edward Jones. "While intentions to save forretirement are legitimate, individuals tend to satisfy more immediate, short-term spending goals and push off their long-term saving goals. This behavior can be incredibly detrimental for individual investors, particularly as they enter the critical savings periods of their 30s and 40s when they have (and unfortunately waste) a tremendously valuable asset -- time."
Another survey by financial firm Franklin Templeton last year discovered that 55% of workers are considering working during their retirement and 30% of those ages 18 to 24 never plan to retire. Inflation plays a big role in that uncertainty.
Franklin Templeton's survey of retirees found that pre-retirement spending actually increases 28% one to five years into retirement), 42% six to ten years in and 44% 11+ years down the line.
That averages out to a 37% hike across the board, which may be bad news for the 36% of workers who think they'll be able to live on 70% of their current income or less (despite the fact that 45% of retirees do so).
"Conventional thinking and attitudes about what it means to retire are changing," says Michael Doshier, vice president of retirement marketing for Franklin Templeton Investments. "By taking action now—via saving and planning for retirement—individuals can help ensure that they're able to embrace this next phase of life."
However, advisors at Voya Financial found last year that 74% of Americans have never calculated their monthly retirement income needs. Meanwhile, 51% of retirees have never tried to determine if their current savings will be enough to last through retirement -- though 39% assume what they have will not last 20 years.
A full 13% of current retirees don't know how much savings they have in the bank in the first place.
HSBC says that 72% of pre-retirees ages 45 and older would like to retire in the next five years, however 37% won't hit that mark, largely (77%) because they don't have the cash to do so. U.K.-based financial firm deVere Group, meanwhile, found that 78% of workers from all over the world underestimate how much they'll need to save for retirement.
"They know that saving for their retirement is now, without question, a personal responsibility for each and every one of us," says Nigel Green, chief executive of DeVere Group. "However, what is alarming is that the vast majority do not know just how much they will need to save. This black hole in the detail -- not knowing how much they will need in something as fundamental as funding their retirement -- is extremely concerning indeed."
There are other variables at play as well.
HSBC found that 67% workers are unable to predict how much they are likely to spend on healthcare in retirement, including 63% of those living in households with an annual income over $79,999. UBS, which only surveys investors with at least $1 million in investable assets, found that only 50% in investors have factored health care costs into their overall financial plan, and only 23% have saved for their future care. About 88% of wealthy investors say factoring in health care costs is harder, because people are living longer, while 76% note that the price of modern health care is significantly higher than it was for previous generations.
"The life expectancy factor is the trickiest one, because there is no way to confidently predict how long we will live, and we actually tend to underestimate our own longevity," says Mike Lynch, Vice President of Strategic Markets for Hartford Funds. "While in the past, life expectancy was shorter, today we are living longer, healthier and more actively than previous generations before us. That's the good news and the bad news, because our retirement dollars may need to last longer and work harder than we realize."
As a result, Voya Financial points out that 59% of working Americans are very or extremely concerned about outliving their retirement savings -- with 74% having never calculated their monthly retirement income needs -- just taking that first step can be tough. Voya notes that retirees will need 70% of their current annual income to continue their current lifestyle in retirement.
That's proving to be a tough obstacle Though GOBankingRates notes that 13% of workers have $300,000 or more saved for retirement, about 30% of those age 55 and over have no retirement savings and 26% have less than $50,000.
In fact, only 26% of Baby Boomers nearing retirement age have $200,000 or more, while 31% of Boomers over 65 can say the same.
That still beats the 52% of Generation X (ages 35 to 54) who still have less than $10,000 in retirement savings after the recession wiped out 45% of their net wealth on average, according to Pew Research Center.
Roughly 31% of Gen Xers have no retirement account at all, though 40% of Gen Xers over 40 have more than $50,000 in retirement accounts. Among that group, 7% have between $200,000 and $300,000 socked away, while 15% have $300,000 or more. Meanwhile, though 60% of Millennials (18-34) have started a retirement fund, 72% have saved less than $10,000 or nothing at all. A full 42% have no retirement savings, though that percentage shrinks to just 36% of those older than 25.
If you're looking for bare minimums, GOBankingRates and J.P. Morgan have calculated them out. If you're age 40 and making the $66,693 median salary, you should have more than $100,000 saved for retirement. Unfortunately, only 20% of people at that benchmark do. For the 50-year-olds making a median of $70,832 a year -- the peak of their earnings -- there should be close to $212,496 socked away. Only 22% have hit that mark. As for 60-year-olds coasting into retirement at $60,580 a year, only 26% have the recommended $260,500.
The best advice anyone can offer is to start now. Don't worry if you didn't start saving early on: just get to saving. Edward Jones noted that 90% of its study's youngest respondents said they planned to or began saving in their 30s or earlier. However, only 64% of respondents ages 35 to 44 actually began saving in their 30s. Roughly 22% of all respondents say they began saving between the ages of 40 and 50.
Kids only make those plans for complicated. About 40% of workers in single-person households indicated that they are not currently saving, according to Edward Jones, compared to 51% in a household three or more. Similarly, 58% of those without children have already started saving, compared to 49% with children.
"Parents are recognizing the need to save earlier in order to account for additional costs, like education," Thoma says. "We cannot emphasize enough the importance of saving for retirement early and often - it leads to higher future income in retirement, with less stress and uncertainty while working to achieve those goals."