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3 Steps You Can Take Right Now for a Comfortable Retirement

By Dave Kovaleski – Updated Jul 23, 2020 at 7:01AM

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72% of Americans expect to work in retirement -- do you?

Roughly half of Americans believe they will outlive their retirement savings, according to a recently published survey by retirement services provider Simplywise. Outside of Social Security running out, outliving their retirement savings is people's biggest retirement fear. But when you consider that another 37% believe they will not have enough money set aside to ever retire, you know it's a huge concern. That may be why 72% say they will have to continue to work in retirement, according to the survey.

It can all seem overwhelming, particularly with the type of economic uncertainty and market volatility we have experienced. But there are three steps you can take right now to quell those concerns and get on the right track for retirement.

1. Establish a number

To get where you're going, you have to first establish a destination. In this case, it's about simply establishing a number -- or total savings amount -- that you'd like to reach for retirement. Fortunately, there are an abundance of retirement savings calculators out there, including the ones provided by us here at the Fool. There are also several basic formulas you can apply that will give you a ballpark number. One simple rule is that you'll need 10 times your final year's salary. So, if you're 50 now and make $55,000, you'd make around $77,000 at age 67 with a 2% annual salary increase baked in. Multiply that by 10, and that comes to about $770,000.

If you do it by household income, the same formula applies. If you and your spouse expect to make $150,000 at retirement, you'll need about $1.5 million. Bigger spenders may want to increase that a bit, while more frugal folks should still aim for that 10 times number to be safe.

Older man in sunglasses and hat riding bumper car with young boy.

Image source: Getty Images.

Another retirement rule of thumb is to have 70% to 80% of your final year's salary for each year of retirement. If you make $77,000 in your final year, 70% of that is about $54,000. Multiply $54,000 by expected years in retirement -- say 20 -- and that's about $1 million, and $2 million for you and your spouse.  

2. Assess where you stand

Now that you have a number -- in this case, between $770,000 and $1 million -- you need to figure out where you stand on the road to that place. That means looking at the totals of all your retirement accounts, starting with Social Security. You can find out how much you're expected to get per month by going to the Social Security website and creating an account under My Social Security. Your benefits should be listed there, and you can calculate how much you'll get per month at retirement by inputting the required data.

If you can expect to get $2,000 per month from Social Security, that comes out to about $24,000 per year. The rest will need to come from your retirement savings accounts. So, if you can expect $24,000 per year in Social Security, you'll need another $30,000 per year, based on that $54,000 per year calculation. In terms of total dollars, $30,000 per year multiplied by 20 years is $600,000. Now, look at your 401(k), pensions, IRA, etc., to see how much you have in these accounts. If you're close, or on track, then keep doing what you're doing. If you are not, then you'll need to develop a strategy to get there.

3. Develop a strategy

If you are off the pace after making these calculations, then you need to start now to increase your savings and boost your retirement accounts. If you have a 401(k), make sure you are contributing enough to get the full employer match. Work toward contributing the maximum you can to your 401(k). This may require you to create a budget to save more. A good framework to use is the 50-30-20 rule. This rule divides your expenses into three main categories. 50% go to fixed costs, which include rent/mortgage, car payments, utilities, and other bills. 30% go to variable costs, which include groceries, entertainment, clothing, etc., and 20% go to savings or investments, after your 401(k) contribution. This framework may help you close the gap. If not, you may have to change your retirement age, or consider working part-time in retirement.

As we all know, especially now with high unemployment, life can change quickly. A job loss may force an early retirement, which could mean taking Social Security early or tapping your 401(k) before you planned to. Scenarios like these may require tougher decisions, like downsizing your home or altering your lifestyle -- now and in retirement. It may also require you to work part-time in retirement to supplement the lost income. Either way, making these calculations now will set you on a course to a comfortable retirement.

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