What Young People Will Need To Save To Survive Retirement
A new report from the International Longevity Centre in the UK (ILC-UK) says that for young people who want to have a "comfortable" retirement, the time to start saving is now - and the savings should be at least 11% of their total income every year. The ILC determined how much young people needed to set aside in order to avoid shortfalls come retirement, defining "adequate retirement income" as 70% of earnings throughout their working life. Unforunately, based on most fluctuating economies throughout the world, as well as low investment returns and high interest rates, not to mention a decline in Social Security benefits, it's very likely that today's 20-somethings will "do worse" than current retirees.
If today's youth want to have the same level of comfort in retirement as today's retirees, they will have to save even more than past generations, and should hope to sock away "just over 20 percent of average wages," according to the ILC-UK report, which is a lot more than more Americans are able to save. According to the Economic Policy Insititute, nearly half of families have zero retirement savings.
A big tip towards saving to hit the 11-to-20 percent range is to start contributing towards your 401(k) plan if it is offered by your employer. Whether or not there is a savings plan offered at work though, it's always possible to contribute to other tax-advantage accounts that are designed for retirement, such as traditional IRAs, Roth IRA, etc. Regardless of which savings vehicle is chosen, though, the most important thing to to do is to actually open at least one of these accounts, and then help it grow. You can build them up by contributing as much of your income as possible. Automating these contributions makes it less likely that you will spend the money before you are able to save it. Have your employer set up a payroll deduct to have a portion of your paycheck or a set amount from your checking account go directly into a retirement account. If you never see the money, it's like it's not there at all, and the remainder can be used for everyday expenses, budget only to that amount. It's impossible to spend money if you never "receive" it.
Getting into these habits of saving, and then increasing your savings at the end of every 6 months, year, or whenever you get an increase in pay or work bonus, can help you drastically improve your standings when it's time to retire.