Americans are Grossly Underprepared for Retirement

Americans believe in a well-documented path to retirement: work hard, save money (maybe using the 401(k) offered by your employer), and say goodbye to the daily grind in your early-to-mid 60s. MassMutual’s 2018 State of the American Family survey pegs the average age Americans plan to retire at 62, a full two years younger than 2013’s survey, with 47 percent of participants (a two percent increase) expressing confidence they could retire when they wanted to. But there’s a problem: despite optimism about retiring early, most people do not have the plan, nor the savings, to do so.

Planning retirement is of vital importance. MassMutual’s survey indicates that only 36 percent of participants had created a savings plan, with 24 of the 36 percent staying committed to it – figures that don’t bode well for a worry-free post-work life. It is well worth the time to map everything out using a retirement calculator or through some basic calculations.

The first step to creating a plan is evaluating life expectancy. Naturally, it’s very difficult to accurately predict this, but after taking health, lifestyle factors, family history, and more into account can help develop a rough estimate. Subtracting your ideal retirement age from perceived life expectancy shows how many years to save for.

Next, establish living expenses in retirement. While these can be ever-shifting, a ballpark figure is necessary – as is periodically reevaluating savings goals for accuracy. To get a rough estimate, take current monthly expenses, factor in expenses that might not be necessary in retirement (child-related, commute, down-sizing a home, etc.) and multiply by 12 to calculate a yearly savings goal. Multiply this figure by the total number of years to save for as calculated above, taking average yearly inflation of 3 percent into account.

You may even be entitled to some help – certain employers offer 401(k) matching. There are also Social Security benefits, determined via your 35 highest-earning years, which are accessible at 62 but typically kick in in full around 66 or 67 (and you can even delay benefits earlier for larger amounts later). Sign up for a My Social Security account to get an estimate of your eventual benefits, multiply by the number of retirement years, and subtract the resulting amount from the previously-calculated total for a better snapshot of your savings goal. Use that figure to determine a monthly savings amount, keeping in mind the benefits of compound interest (though it is helpful to estimate more conservatively and be pleasantly surprised than the alternative).

And don’t despair – there’s hope even if you are behind the eight ball on retirement savings. While saving for retirement earlier provides a greater margin for error (and means having the ability to contribute less per paycheck), you can make up for lost time by increasing short-term contributions. Catch-up contributions are also an option; worst case, you can push your retirement back to save more. Retirement is an attainable goal – if you don’t go in blind.

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Contributor

Sergey Savastiouk|Expert

Sergey Savastiouk, Ph.D. has a degree in Applied Mathematics from Moscow University and has extensive experience as an entrepreneur, investor, manager, and mathematician. His professional expertise is in applied mathematics, mathematical modeling, system and pattern analysis, and software and hardware system integration. He has served as the CEO of several hi-tech start-up companies and nonprofit organizations, which has given him proven capabilities in business strategy for high-tech start-up companies, market assessment, company formation, team building, product development, marketing, and sales. He has published numerous articles in journals and magazines on related fields. As a retail investor, he spent 15 years developing his proprietary trading and quantitative algorithms (now Tickeron’s A.I.), which brought him significant returns in trading the stock market. His current work and goal in founding Tickeron is to bring professional, sophisticated stock market analysis capabilities to retail investors via an easy-to-use interface.

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