Rosalind Evans
A recent study reveals that nearly half of American households cannot maintain their current lifestyles in retirement. This statistic is alarming for many who hoped their savings would be enough to sustain their post-working years. Planning for retirement requires a comprehensive approach, and there are ways to beat the odds.
The Harsh Reality of Retirement Savings
According to Boston College’s Center for Retirement Research (CRR), “half of the nation’s working-age households will not have enough money to maintain their standard of living once in retirement.” The CRR’s National Retirement Risk Index indicates that millions of Americans may face financial hardship unless they significantly change their spending and saving habits.
The study shows that many households must cut back on luxuries and necessities in retirement. As the CRR explains, “Retirees will have to sell valued assets like a family home or skip necessities like food and medication.”
The Income Replacement Struggle
The CRR’s research focuses on income replacement, or how well retirement savings can replace working income. Most retirees need 80% of their working income to maintain their standard of living. Unfortunately, half of American households fall short of this mark, putting them at risk of financial difficulty.
For many, downsizing may not just be an option but a necessity. As the study explains, retirees may need to “go out for dinner less often or may no longer be able to travel.” Preparing for these changes ahead of time can ease the burden.
A Nationwide Retirement Crisis
The issue of underfunded retirements is not new. In the late 1970s and early 1980s, retirement shifted from employer-backed pensions to individual 401(k) plans. This change placed the responsibility on workers to save enough for their futures. The CRR notes that “households simply have not been able to save the money they will need to pay for retirement.”
Since 2004, the National Retirement Risk Index has consistently shown that about half of households must prepare for retirement. In its most recent report, the CRR found that even high-income households face this challenge, with 41% unable to meet their retirement goals.
How to Improve Your Retirement Outlook
Though the situation may seem bleak, it’s not impossible to turn things around. The key to a comfortable retirement is starting early. Even small contributions in your 20s can grow into a sizable nest egg when you retire. “Making modest contributions to a portfolio that can grow over 60 years will be one of the best ways you can help young children get a head start on life,” says the CRR.
Financial experts recommend setting aside at least 10% of your salary for retirement. If your employer offers a matching 401(k), take full advantage of it and consider opening a Roth IRA or 401(k) to diversify your savings further.
Creating a Personalized Retirement Plan
Relying on general rules of thumb may not be enough. Instead, use retirement calculators to tailor your savings plan to your needs. “Start with a sense of how much money you will need in retirement,” suggests the CRR, “then work backward to figure out how much you should be contributing.”
Additionally, if you anticipate needing to downsize your lifestyle, plan for those changes now. By understanding your retirement goals and adjusting your current spending, you can make informed decisions about your future.
The Boston College study paints a grim picture for millions of Americans, but it doesn’t have to be your story. Begin saving early, contribute consistently, and work with financial advisors to create a retirement plan that ensures financial security. Planning is essential to avoiding a retirement filled with economic challenges.
