60% of Americans Aren’t Saving Enough for Retirement

What’s your target retirement date? If your answer is, “I don’t have one,” you're not alone. Saving money for retirement is something we all know we should be doing. But like so many other things in life, it’s easier said than done.

Saving for retirement

According to a recent survey conducted by Freedom Debt Relief, 60 percent of American households are saving less than $1,000 per year for retirement. It’s not that Americans don’t want to build retirement savings—they often just find it difficult to have money to set aside. 

You may know the feeling. You work hard, but bills add up quickly. Keeping the lights on and food on the table naturally comes before future goals like retirement. Sometimes, even if you otherwise have good financial habits, when you're done paying your monthly bills, there isn't a lot left over.

According to the survey, 32 percent of Americans say that everyday expenses are the biggest barrier they face when trying to increase their retirement savings, and 17 percent said that their debt was getting in the way of their savings.

But just because you haven't been able to set aside retirement savings before doesn't mean you've missed the boat. There are small steps you can take to prepare for retirement right now, and they don't all require money, either. 

One of the most important things you can do is educate yourself about retirement savings, including how much you need and what tools can make the job easier.

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How much should you save for retirement?

Many factors affect how much you need in retirement savings, including:

• Your age

• The cost of living where you plan to retire

• Whether you expect to have other sources of retirement income (i.e. a job, Social Security)

• Your life expectancy

• Your health

• How you plan to spend your time in retirement

If possible, it’s good to save 15% of your income for retirement. If that doesn’t work for your situation, try 10% or even 5%. Saving any amount for retirement is better than not saving at all. 

A retirement calculator can help you figure out the amount you need to save. One helpful calculation is to estimate your annual living expenses, and then subtract the income you’ll receive from Social Security. The difference is the amount of money you’ll need each year from your own savings.

For example, if you think you'll need $50,000 per year to cover your retirement expenses, and you expect to get $20,000 per year from Social Security, then you need to save enough to cover $30,000 of expenses per year on your own.

Retirement savings rule of 25

One popular rule says to take the annual expenses you need to pay on your own, then multiply this by 25. This is supposed to tell you the amount of savings you need to cover your retirement expenses for 30 years, assuming you withdraw 4% per year. In our example above, multiplying $30,000 by 25 would give you a retirement savings goal of $750,000.

When should you start saving for retirement?

Now. Because time is the most important factor in building wealth for retirement. Your money is like a snowball at the top of a hill, and the investment income is the snow that builds as the ball rolls down the hill. The longer the snowball rolls, the bigger it gets.

The same is true of your retirement savings. The earlier you start saving and investing, the more likely you are to have enough for retirement. For example, if you start saving $5,000 per year at age 25 and earn a 7% return on your investment, your retirement account will be worth about $1 million when you hit age 65. On the other hand, if you wait until you’re 45 to begin, you need to save over $24,000 per year to end up with $1 million at age 65 (assuming the same 7 percent rate of return).

What tools can help you stay on track with retirement savings?

There are a lot of great apps and tools to help with retirement savings today. Here are a few favorites:

• Empower has a terrific retirement calculator and a 360-degree view of your money.

• OnTrajectory is another great retirement planning tool and calculator.

• Robo-advisor apps are low-cost ways to invest for the future that take the stress out of managing your investments on your own.

• Mint offers a free version of its app for basic budgeting and saving.

In order to be a good steward of your money, it’s also important to keep track of what you have and what you spend. There are many tools, like the Mint app, to help you do just that.

Top tips to ensure you’re saving enough for retirement

Here are some tips that can help you build your retirement savings:

• Pay down high-interest debt if possible. Getting debts with high interest rates, like credit card debts, off your plate can give you more money for retirement savings. If you need help dealing with your debt on your own, consider a debt relief program.

• Claim a 401(k) match if you're eligible. This is money your employer puts in your retirement account on your behalf to match some or all of the money you put into your 401(k).

• Use an IRA if you don't have access to a 401(k). Traditional IRA contributions save you money on taxes right away, but you pay taxes on withdrawals from these accounts. You pay taxes on your Roth IRA contributions in the year you make them, so you can usually withdraw them tax-free in retirement.

• Automate your retirement savings. A 401(k) should let you put a portion of each paycheck into your account. IRAs may let you link a bank account and set up an automatic money transfer on a schedule that works for you.

• Increase your retirement savings whenever you get a raise. Do this as soon as possible to help your money grow even faster.

• Continue to invest during market ups and downs. The stock market naturally goes up and down. Losing money from time to time is normal, even if it isn't fun. Stay the course and keep investing on a regular schedule if you can.