Retirement is supposed to be a joyous time in life. You've spent decades working toward this goal with the hope that once you retire, you can finally sit back, relax, and spend your days doing whatever you want.
However, for many workers, that dream seems far out of reach. Retirement is expensive, typically costing several hundred thousand dollars, or even well over $1 million for some people. Yet the median amount baby boomers have saved is just $152,000, according to a report from the Transamerica Center for Retirement Studies. Even more worrisome is the fact that 45% of boomers have nothing at all saved for retirement, according to the Insured Retirement Institute.
Thanks to this lack of savings, Americans share one major concern: they won't have enough saved to last through retirement. Approximately 77% of Americans say they're either not confident or only somewhat confident they have enough savings to last the rest of their life, according to a survey from the Associated Press-NORC Center for Public Affairs Research.
If you're struggling to save, retirement may be more stressful than enjoyable. Here's how to ensure you have enough to last through your golden years.
Goal setting: The first step to preparing for the future
Before you can tell whether you're on track for retirement, you need to have a target in mind. How much money you'll need to last the rest of your life is highly dependent on your unique situation, so your retirement number could differ from that of your coworkers, friends, and family. In other words, don't simply choose a number you think sounds good enough and make that your goal.
First, figure out roughly how much you expect to spend each year in retirement. Many retirees end up spending less than they did while they were working, but again, whether this is true for you depends on your situation. If you plan to spend retirement traveling the world, you'll need more cash than if you expect to relax at home and catch up on your reading.
Next, consider at what age you want to retire. Try to be as specific as possible because when you're figuring out how much you have to save, even a few years make a big difference. For example, if you're spending $40,000 per year in retirement, if you retire just three years earlier than you expected, that's $120,000 worth of savings you'll need.
Also, be realistic about how long you can work. Roughly 43% of workers retire earlier than they anticipated, according to a study from the Employee Benefit Research Institute, with the most common reasons including job loss and health issues. So if you're banking on the idea that you can work as long as you need to boost your savings, you could be in for a shock if you're forced into an unexpected early retirement.
Next, use a retirement calculator to get an estimate of what you'll need to have saved by the time you retire, including inflation. Most calculators will also tell you how much you'll need to save each month to reach your goal, making that big goal a little more attainable.
Finding enough savings to reach your goal
If you're behind on your savings, you may discover after running your numbers in the retirement calculator that you need to save a significant amount of money each month to reach your goal. It may be tempting to throw in the towel right away, assuming that you have no chance of saving enough to retire. But saving even a little is better than saving nothing, and if you're willing to make some sacrifices, you may be able to find some cash to put toward retirement.
The first step to saving more is to figure out how much you're spending in the first place. Until you start tracking all your expenses, it's tough to tell exactly where all your money is going -- which makes it easy to overspend without realizing it. Once you see all your expenses in one place, you can figure out where to make cuts.
Start by eliminating all the expenses you know right off the bat are unnecessary. Next, aim to cut back on some of the unnecessary-but-still-enjoyable costs, like dining out, cable, and other leisure activities. Depending on your financial situation, you may be able to save hundreds per month by making these types of cuts.
Once you've trimmed as much as you can, if it's still not enough to reach your saving goal, you might need to get creative or take drastic measures. Try carpooling to work to save gas, or you may choose to sell your car altogether and bike to work instead, if possible. If you really want to cut costs, you may even decide to downsize your home to potentially save hundreds of dollars per month on your mortgage -- which can make a major impact on your retirement savings.
If your savings are sparse and you're barely scraping by financially, retirement may sound like a far-fetched, unattainable dream. But if you have a goal in mind and a plan to achieve it, you'll be well on your way to enjoying the retirement you've always wanted.