Surprisingly, This Is How Much Money Americans Need to Save for Retirement

More than half of Americans haven't saved what they need to retire. But a new study reveals how much of their money millions will need to save to meet their retirement needs.

Aug 2, 2014 at 9:25AM

The latest information is in. And it shows half of Americans haven't saved enough to retire with what they need. But there's good news; it also shows there's still time, and reveals exactly how much of their money people need to save to retire comfortably.

The major risk
The Center for Retirement Research at Boston College recently released its latest study titled "How Much Should People Save?" It examined not only how much people need to save to retire comfortably, but also how well Americans are doing to meet that goal.

Troublingly, the study found, "half of today's working families are 'at risk' of not being able to maintain their standard of living once they retire."

Source: Center for Retirement Research at Boston College

The National Retirement Risk Index (NRRI) spans across a variety of factors, but in short, it takes the data from the Federal Reserve's Survey of Consumer Finances measuring how much people have saved up through personal and employer-sponsored retirement plans, home ownership, and more.

It then takes their current income and standard of living to determine how much support they will receive from the government through Social Security when they retire, and then gauges how much they will need out of their own pockets in retirement to maintain 70% their standard of living.

Those who fall more than 10% short of the necessary savings in order to meet those goals are designated as being at risk. And as you see, that number has continued to grow as employers are contributing less to sponsored retirement plans, the American economy slowly recovers from the financial crisis, and more generally, people are saving less than prior generations.

And while the growing numbers are troubling, the study also revealed there is thankfully still time for millions to make up lost ground.


Source: Center for Retirement Research at Boston College

The amount we need to save
As shown in the chart to the right, beginning at age 35, Americans need to save about 15% of what they make, in order to have a sustainable source of income through an annuity when they retire.

It's also important to point out the study also assumes the savings will earn a real return of 4% -- which is the return after inflation -- meaning it's not just parking the money into a bank account, but also patiently investing as well. But it must be noted, from 1982 to 2012, the S&P 500 delivered a real-return of nearly 6% even after factoring fees, inflation, and taxes, so the 4% return would even be considered conservative.

But one of the most fascinating things the study found was the massive benefits of saving earlier and retiring later:

Source: Center for Retirement Research at Boston College

As you can see, just eight years of difference in terms of retirement age can have a monumental effect on savings. In addition, there are incredible benefits of saving sooner rather than later.

Just as Warren Buffett said, "someone's sitting in the shade today because someone planted a tree a long time ago," we must see time is a critical factor for both saving and investing well.  

Looking ahead
At times, it's easy to convince ourselves that we have plenty of time to comfortably save for retirement and don't need to think about it today. But no matter where you find yourself today, it's critical to know what a monumental difference just a few years can make when it comes to starting both saving for and beginning retirement.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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