In June 2016, human resources consulting firm Willis Towers Watson reported that almost 25% of Americans think they won't retire before age 70 due to finances (or lack thereof). But the latest out of TD Ameritrade paints an even bleaker picture. According to a study released last year, 25% of Americans say they won't ever manage to retire. This attitude is almost equally prevalent among both millennials and baby boomers.
Given that one out of every three Americans has no retirement savings, it's no wonder so many workers feel that retirement isn't a given. But if you start prioritizing your future and setting money aside while you're still working, you stand a strong chance of retiring, even if the odds seem stacked against you.
Boomers and millennials are saving, but is it enough?
TD Ameritrade reports that the average boomer saves $565 a month for retirement, while the average millennial saves $315. And the disparity makes sense. Compared to their younger counterparts, boomers typically earn more and therefore have additional flexibility to save. Millennials are also more likely to be saving their money for something else, like a down payment on a home, whereas many working boomers are finally at the point where their kids have moved out, they're no longer dealing with college expenses, and their mortgage payments are a thing of the past.
But while $565 per month might sound like a respectable amount for the typical boomer to save, let's not forget that many boomers didn't start out saving that amount right away. Many, in fact, only began setting aside money later in their careers, once the idea of self-funded retirement savings grew more mainstream. In fact, millennials have a major advantage in that they've been told to start saving from the get-go. As a result, millennials typically start saving for retirement at age 26, whereas the average age for boomers to have started saving is age 31.
Now imagine that you're looking at a baby boomer who started saving $565 a month at age 31 and continued doing so until age 65. Assuming an average annual return of 7%, that saver would have a grand total of roughly $870,000 to use in retirement -- not bad at all. The problem, however, is that a fair number of boomers didn't start saving at 31. Many started in their 40s, or even 50s, which narrows that growth horizon significantly.
So now let's take a boomer who started saving $565 a month at age 50. By age 65, that saver would have just $170,000. Over the course of a 20-year retirement, that's just $708 a month of income. Even if you add in Social Security, which, for the average current recipient, pays $1,360 a month in benefits, that's still just $2,068 -- hardly enough to cover even a frugal retiree's monthly living costs. Throw in the fact that 30% of workers over 55 don't have any long-term savings, and it's not surprising that boomers are resigned to never retiring.
Millennials still have time to catch up
While baby boomers don't have a whole lot of time to make up for years of poor savings, younger workers are a much different story. Millennials are saving an average of $315 per month and starting at age 26, which makes for a 40-year growth window. Assuming an average annual 7% return, the typical millennial who follows this pattern stands to accumulate $754,000 by the time retirement rolls around.
Even older millennials -- those already in their 30s -- have plenty of opportunity to save. Assuming that same 7% return, putting aside $315 a month starting at age 36 would result in $357,000 after 30 years' time. Even if you were to spread that sum out over a 25-year retirement to account for increasing life expectancies, that's still close to $1,200 a month in future income outside of Social Security -- not ideal, but better than what boomers who get a late start stand to see.
Changing your retirement picture
If retiring is important to you, you can take steps to attain that goal no matter your age -- you just might need to adjust some expectations. If you're 55 without savings, retiring at 65 may be a stretch. But if you're willing to delay retirement until age 70, you'll get five extra years to max out your IRA or 401(k) -- not to mention an opportunity to boost your Social Security benefits by holding off on claiming them.
If you're younger, you have an even greater opportunity to save. In our above example, we saw that saving $315 a month for 30 years would make for a $357,000 nest egg. Increase your savings by $200 a month, and you'll be looking at $584,000 instead.
Finally, don't discount the possibility of retiring from your regular career, but working part-time later in life. Retirement is a great time to start your own business and get paid to do something you love. Not only can working during retirement help boost your income, but it can also help you avoid getting depressed, stir-crazy, or both.
In fact, while most workers who don't expect to retire at all attribute that sentiment to a lack of savings or financial capability, according to TD Ameritrade's survey, 19% of baby boomers and 15% of working millennials don't actually want to retire. In fact, 10% of retired boomers actually returned to work in some capacity to negate the boredom factor.
That said, most people who spend decades in the workforce do want to retire. If you're willing to focus on savings, alter your retirement time line, or commit to spending at least some of your senior years working in one capacity or another, you may come to find that retirement is an achievable goal after all.