Saving money for retirement is best done throughout your entire career. The earlier you start investing and the more you contribute to your accounts annually, the easier it is to amass the nest egg you need for a comfortable retirement.
Unfortunately, 2020 will be a lost year for millions of Americans when it comes to investing for their future. In fact, a recent SimplyWise study showed far too many people saved little or nothing toward retirement over the past year.
This isn't surprising, given the global pandemic and record high unemployment, but it does underscore the importance of getting back on track ASAP to avoid serious financial worries late in life.
The amount most people saved last year was well below what it needs to be
According to the SimplyWise survey conducted in November 2020, 28% of Americans didn't save any money for retirement over the course of the prior year. And a whopping 58% of people saved under $1,000 during the 12 months prior. Unfortunately, these low savings rates weren't just among young people with plenty of time to invest. Among Americans in their 50s, 27% didn't save anything.
Unemployment and economic uncertainty were major driving factors for the low savings rates last year, with 45% of people whose jobs had been affected indicating they hadn't invested for retirement. This is understandable, as even with expanded unemployment benefits, it can be difficult to devote money to future planning when you're trying to figure out how to pay the bills today.
Falling behind on savings doesn't have to mean the end of your retirement dreams
While the data on savings last year is troubling, the good news is that missing a year -- or even a few years -- of contributions doesn't have to be devastating. You can recover from a bad financial year as long as you account for its consequences and adjust your plans going forward.
If you're among the millions of Americans who set aside little or no money in 2020, your first step should be to reassess the amount you need to invest now to get back on track for hitting your goals.
If you've calculated the amount required for retirement already, this is as simple as using an online calculator to see how much to invest each month to hit your target -- based on what you currently have saved and your desired retirement date. If you don't already know how much you'll need, set that target first and then use a calculator to tell you exactly how much to invest each month.
If you missed a year of savings, you may find you must do a little bit more than you were before to retire on schedule with sufficient funds. But as long as you know that, you can make adjustments to your budget when you get back on your feet.
What you can't do, though, is continue to save under $1,000 for your retirement on an indefinite basis and expect to have financial security in your later years. You can't live on Social Security alone, as benefits are simply too small to support you comfortably. Make a plan as soon as you're financially able to build a portfolio that will sustain you once you've left the working world.