61% of Americans Don’t Know How Much to Save for their Retirement Funds!
When financial experts ask the young, working adults of how much they should save to live a comfortable retirement, an astounding 61% of American population answered with “I don’t know.” This, according to the recent survey conducted by Bankrate.
The Survey’s Results
The survey also revealed that millennials nowadays underestimated the funds they should save for their retirement. One millennial said they only need around $250,000 or less, which is only 1/4 of the recommended $1 million in retirement funds to raise according to financial experts. While around 15% of the participants said they needed between $250,000-$1 million, but they still didn’t know the specific amount to live a comfortable retirement when they get old.
The older generation, on the other hand, gave a lower amount for their funds. Both the late bloomers and middle-aged class agreed that the ideal age to retire is 73 while having a $500,000 money on their bank accounts are enough to sustain their lives when they get old.
The survey also revealed that Gen X predict they need at least $1 million. Based on the results, the Bankrate financial experts were appalled to discover that most Americans fail to understand how much money they should raise to live their golden years comfortably. And even if they do, their savings aren’t enough to support their living expenses.
In another Bankrate Survey conducted last March, the company also found that 20% of the American population doesn’t allocate a portion of their annual income for savings. While 16% of the respondents say they save about 15% or more of their average income, in which, the experts recommend. While 1/4 of the respondents say they only save between 6-10% of their income. The other 21% of the participants said they only save 5% or less of their income at all.
If you’re one of these Americans who struggled with saving and building their funds, the financial experts recommend you to use some of these strategies to help you build a solid financial foundation.
The Timeline Strategy
As you navigate through different stages in life, the financial experts laid out different financial goals for you to achieve before you hit the retirement age. This method is known as the timeline strategy:
Before hitting 30s: Save at least the equivalent of your salary.
Before hitting 40s: Save at least thrice of your salary worth.
Before hitting 50s: Save more than six times your salary worth.
Before hitting 60s: Save more than eight times your salary worth.
By 67: Save at least 10 times of your salary worth.
The 4% Rule
The 4% rule states you’ll have enough money in your bank if you can withdraw 4% a year from your retirement portfolio. You can also determine how big your target retirement fund is by diving your annual spending by 0.04 and multiplying it by 25.
Once you’ve determined your retirement goal funds, the next thing you need to determine is whether or not you’re saving enough to reach your goal in time. In this case, the financial experts advise you to calculate your savings rate. An example equation is presented below:
Gross Income/Amount Saved The Previous Year.
For example, if you have a salary of $50,000 (already tax-free), and you’ve saved around $5,000 for your retirement account, this means that your savings rate is only around 0.1 or 10%. The financial experts recommend you save at least 15-20% of your income to reach your goals sooner.
If your company offers a 401(k) plan, make sure to take advantage of it and start saving for it. This essentially gives you the opportunity for free money in the future. If your company doesn’t offer it, opt for Roth IRAs or traditional IRAS which offer comprehensive tax benefits. Both retirement accounts also offer you a diversified financial plan to maximize its growth and profit over time.
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