With two years of good performance from the financial markets, retirement savers should be a lot closer to getting back on track with their finances. Unfortunately, the financial crisis of 2008 and early 2009 has had a much bigger impact on retirement savings behavior than you might have thought -- and the result could be disastrous for investors of all ages.
This year's edition of the Wells Fargo Retirement Survey has a lot of troubling news for wannabe retirees:
- Among those ages 50 to 59, retirement savers predict that they'll need $300,000 for their retirement nest eggs, but the typical 50-something saver has just $29,000 set aside thus far. Wells Fargo estimates that $29,000 would produce about $190 per month for retirees -- far less than they'll need.
- Those in their 20s, who could best benefit from being in the stock market the longest, are actually most likely to stay away from stocks. Having gotten burned by the financial crisis, young investors aren't in a hurry to put what's left at risk, opting for bank CDs and other low-return investments.
- Retirement savers in their 40s are having the most difficulty adjusting to new economic realities. Those who are older are much more likely to have employer pension plans assisting them, but for middle-age and younger workers, the shift toward 401(k) plans and other defined contribution arrangements means the responsibility for saving is all on them, as they won't be getting any help from their employers after they retire.
In other words, just about everyone needs to take action in order to make sure they don't make a huge mistake with their retirement investing strategy. Otherwise, the weak foundation that they've started from could easily crumble beneath their feet.
The right answer for your retirement
Your age makes a huge difference in how you should invest for retirement. But no matter how old you are, the one thing you have in common with everyone else is the need to set as much money aside for savings as you can. With so many people woefully underfunded on their retirement accounts, you simply can't expect even the best investment returns to make up for not having enough money to invest.
For baby boomers approaching retirement, increasing savings is the most important way to improve your situation. If you have 10 years to go before you retire and have a shortfall similar to the one described above, aiming to save about $15,000 each year would go a long way toward closing the gap between the $29,000 you have and the $300,000 you think you need. That sounds like a lot to set aside, but if you can swing it, it allows you to stay relatively conservative with your investments.
That doesn't mean avoiding risk entirely, though. Owning some stocks is still essential. But fortunately, a number of promising stocks, from Ford Motor
Playing for the long haul
Investors from 20 to 50 have some options that baby boomers don't have. Investing in growth stocks can help you improve your returns, if you're willing to accept the volatility. Some growth stocks never pan out the way you hope, but big winners can make up the difference. priceline.com
But no matter what age you are, if you're scared about stocks, sticking with stable dividend payers can help you gain your bearings while you wait. The dividend-stock ETFs Vanguard Dividend Appreciation
Don't give up
It's not too late to take steps toward shoring up your retirement. If you take action now, it may make the difference in giving you the retirement of your dreams.