Americans Are Getting Closer to Meeting Their Retirement Savings Needs – but Many Are Still Far Behind

We read a lot about how Americans are woefully unprepared for retirement. So when a spot of good news comes out, it's always a breath of fresh air. Earlier this week, Fidelity reported that Americans are better equipped to handle retirement expenses today than ever before. Specifically, the typical saver is on track to have about 80% of the income he or she will need as a senior. And for those with a number of working years ahead of them, getting to that 100% mark is clearly doable.

On the other hand, Fidelity reported some not-so-great news as well: Roughly half of Americans are at risk of not being able to cover their basic living costs in retirement. And these are the folks we need to worry about.

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But whether you're glaringly behind on savings or are close to being on track, one thing's for sure: You have an opportunity to keep building wealth and securing your financial future as long as you still have a steady income. You just need to commit to putting your retirement savings first.

How much retirement income will you need?

Though the precise amount of income you'll require as a senior will depend on the lifestyle you choose to lead, as a general rule, you should go into retirement expecting to spend 80% of what you previously did on living expenses. And if that seems like a lot, remember that healthcare alone will cost the average 65-year-old couple today $400,000 or more in retirement, not including long-term care expenses.

So where will that income stem from? There's Social Security, which, if you're an average earner, will probably replace about 40% of your previous income, thus getting you halfway to where you need to be. The remainder of your retirement income, however, will need to come from you.

Now there's no universal magic number to aim for when building a nest egg, because a $1 million in savings for one person might prove inadequate, while another might manage to get by just fine on $500,000. But as a general rule, Fidelity recommends retiring with 10 times your ending salary socked away, and that advice is pretty spot-on. This means that if you expect to be earning $80,000 at the end of your career, you'll want to aim for $800,000 in your IRA or 401(k).

So how do you get there? If you're among those Americans who are already 80% on track, clearly, you've got the system down pat: Save as much as you can, invest your money wisely, and watch it grow. But if you're approaching the midpoint or, worse yet, latter stages of your career without much in the way of savings, you'll need to step up your game. That means cutting back on expenses to free up cash to stick in your IRA or 401(k), and then investing that money in stocks to generate solid returns.

And if you're thinking you're too old to go heavy on stocks, keep in mind that as long as you're five years away from retirement or more, you have a decent window of time to ride out the market's ups and downs. Of course, the extent to which you load up on stocks will depend on your age. If you're 40, you might put between 70% and 80% of your portfolio in stocks. If you're 60, 50% may be more appropriate.

So now let's talk numbers -- meaning, how much of a nest egg can you reasonably accumulate? It depends on how much cash you're able to sock away, but if we go with $500 a month (not a small amount, but nowhere close to maxing out a 401(k), either), here's what your ending balance might look like depending on your age:

Data source: author.

You'll notice that the calculations assume an average yearly 7% return on investment, which is a couple of point below the stock market's average. That gives you some leeway with regard to market downturns along the way.

Now, going back to our example, say you determine you'll need $800,000 in savings to retire comfortably, and you're 30 years old. Clearly, you have a pretty good shot at meeting that goal. But what if you're 45, with a much shorter savings window? In that case, you have two choices: Save more during the remainder of your working years, or work longer. A third option? Aim to work part-time during retirement. That way, you'll manage with less savings.

While it's refreshing to hear that Americans are closer to meeting their retirement savings needs than ever before, let's not lose sight of the fact that countless workers still have some serious catching up to do. So if you've been neglecting your savings, get moving -- while there's still time.