- Nearly a third of U.S. adult workers say they would need $1 million to retire comfortably.
- Brokerage firms like Fidelity and T. Rowe provide benchmarks to help clarify the path to retirement.
- You may be able to contribute to your retirement beyond your employer’s maximum to meet the IRS limit, said CNBC FA Council member Marguerita Cheng.
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Many people feel like they are behind on their retirement planning. But what exactly does “behind” mean?
More than half, 56%, of American adults in the workforce say they are behind where they should be when it comes to saving for retirement, including 37% who said they are “significantly behind on saving for retirement,” according to a new Bankrate survey to feel “backlog”. Nearly a third say they would need $1 million or more to retire comfortably.
Here’s how experts say you can find out if you’re actually behind — and what you can do to catch up.
Adults may feel like they’re falling behind because they haven’t achieved “these goals in their heads as rules of thumb or points of comparison” that they set based on what they’ve read online, the certified financial planner said Lazetta Rainey Braxton, co-founder and co-CEO of virtual advisory firm 2050 Wealth Partners.
Braxton, a member of the CNBC Financial Advisor Council, pointed to the “numerous calculators” available online that are designed to help investors estimate how much they might need, taking into account both ongoing living expenses and those that might increase in retirement , such as medical costs, should be taken into account. The latter may be significant: According to Fidelity, the average retired couple aged 65 may need to save around $315,000 this year to cover healthcare expenses in retirement.
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Brokerage firms like Fidelity and T. Rowe provide benchmarks to help clarify the path to retirement. The benchmarks provide various age milestones and a goal for savings.
For example, according to Fidelity’s guide, you should aim to have twice your starting salary saved by age 35 and 10 times your starting salary by age 67. According to T. Rowe, you should have 1 to 1.5 times your current annual salary saved by age 35, and between 7 and 13.5 times your salary saved by age 65 .
Given such measures, it’s no wonder people feel behind. According to Vanguard’s 2023 How America Saves Report, people between the ages of 25 and 34 have an average 401(k) balance of $30,017, or an average of $11,357. Even in the 55-64 age group, the average and median are $11,357. The balances are $207,874 and $71,168, respectively.
Comparing benchmarks could stress adults nearing or in retirement if they’re told they’ll need an additional six figures to retire, Christine Benz, director of personal finance and retirement planning at Morningstar, told CNBC .
“But I think specific information is better than no information,” Benz said of benchmarks.
In the Bankrate survey, Generation
Ted Rossman, senior industry analyst at Bankrate, said older adults are feeling more behind because if they’re not yet retired, retirement is getting closer and these workers are realizing “they haven’t saved as much as they would like.” would have.”
People are also living longer on average, meaning many workers now have to fund a potentially 30-year retirement. In this case, Rossman said a 4% payout rate was a “safe bet.” If people believe they need between $1 million and $2 million for retirement – as 13% said in the Bankrate survey – then a 4% withdrawal rate would equate to about $40,000 a year, he said.
“It doesn’t start to sound like quite that much, and then you think, ‘Oh, wow, I might need more than $40,000 a year to live on,'” Rossman said. “So that’s why you feel behind.”
“Oftentimes, looking for savings advice in so many different places just creates more anxiety,” said CFP Marguerita Cheng, CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.
Cheng — who is also a member of CNBC’s Financial Advisor Council — said if your employer’s retirement plan sponsor’s website and several other tools indicate that you’re behind, it’s best to take a look at your contribution rates.
When people say they are maxing out their retirement savings, what they often mean is that they are sticking to their employer’s compensation, which is typically between 5% and 6%, Cheng noted.
However, you may be able to contribute more to your 401(k) to reach the annual maximum, she said. Workers can contribute up to $22,500 this year under the 2023 IRS limit. Individuals age 50 and older who report the most stress related to their retirement are eligible for an additional contribution of $7,500.
While Bankrate found that this age group is also the least likely to know how much they need for retirement, Rossman said that people who don’t have quite as much time left shouldn’t be discouraged from getting started or adding to their retirement savings.
For younger workers, taking early steps to start investing and increasing contributions can help you stay on track. Gen Z and Millennials reported feeling the most ahead in their retirement savings, Bankrate found.
Rossman emphasized that “every dollar” you save in your 20s or 30s counts because “time is on your side.” If young people start early and see profits increase by about 10% a year, their money could “double fivefold over 35 years,” he said.
“That’s a big difference.”