If you're concerned about saving enough money for retirement, you're not alone. One in five Americans has no retirement savings at all, according to a survey from Northwestern Mutual, and one-third of baby boomers have $25,000 or less stashed away.
But while most of the news surrounding workers' retirement savings seems all doom and gloom, there's a bright side for those who are worried about their financial futures.
Only 67% of workers are at least somewhat confident that they'll have enough saved to last through retirement, according to the Employee Benefit Research Institute's (EBRI) annual Retirement Confidence Survey.
Now, that may not seem all that promising, but a whopping 82% of those who were already retired said they were confident their savings would allow them to live comfortably for the rest of their lives. Furthermore, eight in 10 retirees said they felt confident they had enough saved to cover any medical expenses that could arise, which is one of the most significant areas of spending you could face in retirement.
In other words, even if the future seems bleak right now, it may get better once you actually retire.
Why are retirees so positive about the future?
At first, these findings may seem the opposite of what you'd expect. After all, if you're concerned about your lack of savings before you retire, it's hard to believe you'll feel more financially comfortable once you actually leave your job.
But if you adjust your retirement lifestyle to fit your savings, you may feel more financially stable even if your savings aren't quite where you expected them to be. Retirement may also prove to be a good opportunity to scale back and live within your means. You may think now that you need, say, $50,000 per year to get by, but if you only have $30,000 per year to spend in retirement, you learn to make do with that.
Also, some retirees naturally spend less than they did while working. Commuting costs, expensive lunches at the office, and dry cleaning your work clothes can add up, so you may end up saving money once you retire. Of course, if you decide to travel the world or you pick up some costly new hobbies, your expenses could skyrocket. But if you spend most of your time tinkering around the house, babysitting the grandkids, or volunteering in your community, you may actually spend less than you expected in retirement.
Don't forget that unexpected healthcare needs can always crop up, so you need to make sure to plan for your future medical spending.
Keep in mind, though, that this doesn't mean you have a free pass to stop saving. If you're struggling with subpar savings right now, that doesn't mean you're destined to have a miserable retirement. However, it's still important to save as much as you can so you have the best shot at retiring comfortably.
Boosting your savings late in the game
If you're just a few short years away from retirement and your savings are sparse, don't give up hope -- there's still time to grow your retirement fund, and every little bit counts.
For example, say you're 50 years old with $20,000 saved for retirement, and you're contributing $150 per month to your retirement fund earning a 7% annual rate of return on your investments. If you continue saving at that rate, you'd have close to $120,000 saved by age 67.
Next, let's use the 4% rule to see how much of those savings you would be able to withdraw each year. The 4% rule states, in a nutshell, that you can safely withdraw 4% of your total savings during the first year of retirement and then adjust that number each subsequent year to account for inflation. So in this case, you could withdraw around $4,800 the first year of retirement, or $400 per month.
That's not much to live on, but you'll also have Social Security benefits to cushion your personal savings. The average Social Security check comes out to around $1,300 per month, which can help bridge the gap between what you have and what you need -- but it's a good idea to avoid relying on your benefits for a significant majority of your income, since you don't want to be left in the lurch in the event that your benefits are ever reduced.
Is it possible to scrape by on $400 per month in addition to Social Security benefits? Maybe, depending on your lifestyle, where you live, your healthcare needs, and whether you're willing to make sacrifices in retirement. If you have next to nothing saved and don't have much time left to contribute to your retirement fund, you may have to simply make do with what you have and learn to live on less. But if you still have a few years left to save, finding ways to save a little more every month will ensure a more comfortable retirement.
For example, using the previous scenario, let's say you put your savings into overdrive by stashing away $300 per month rather than $150 per month, and you also delay retirement until age 70 instead of retiring at 67. If you're still earning a 7% rate of return, you'd end up with around $225,000 by age 70. Using the 4% rule, you could safely withdraw $9,000 per year, or $750 per month, without running out of money.
In other words, even though you may be able to get by on less, making some sacrifices in the years leading up to retirement can result in a more comfortable and enjoyable retirement. And although the majority of retirees say they have enough saved the last the rest of their lives, there's no harm in erring on the side of caution by strengthening your nest egg as much as possible.