Nobody wants to retire broke, but many workers are facing that grim reality. Retirement is becoming more expensive, and with increasing life expectancies, Americans are spending more time in retirement than ever. When you add that to the fact that Social Security benefits may face cuts in the next couple of decades, investors have their work cut out when saving for the future.
However, not all workers are keeping up with rising retirement costs. More than 6 in 10 Americans admit they're behind on their savings, according to a survey from TD Ameritrade, but some generations are worse off than others.
Generational differences in saving
Across all generations, Generation X is struggling the most when it comes to saving for retirement. A whopping 73% of these workers say they need to catch up on their savings, according to TD Ameritrade, compared to 66% of millennials and 51% of baby boomers.
Gen Xers, generally defined as those who were born between the mid-1960s and the early 1980s, are at a pivotal time in their lives financially. They're in their early 40s to mid-50s and may be feeling the strain from multiple financial priorities pulling their money in different directions. Besides trying to save for retirement, they may be dealing with kids living at home, helping adult children with college tuition, helping care for aging parents, or all of the above.
When trying to balance all these financial priorities, saving for retirement may get pushed to the back burner. After all, if you still have a couple of decades before you can even consider retiring, it surely won't hurt to wait a few more years to start saving, right?
In reality, for every year you don't save, it becomes exponentially more difficult to catch up. If you only have 10 or 20 years or so left to prepare for retirement, you'll need to kick your savings into high gear sooner rather than later. The good news is that, even if you're a Gen Xer behind on your savings, you can still make a lot of progress before retirement if you start saving now.
Saving more when money is tight
Exactly how much you should save for retirement depends on your individual circumstances, and the answer will be different for everyone. Some people may be able to get away with saving only a few hundred thousand dollars, while others will need well over $1 million to last the rest of their lives.
Using a retirement calculator is a simple way to get an estimate of what you should be saving, but keep in mind that your results will only be as accurate as the information you give the calculator. When considering factors like how much you expect to spend each year once you retire and how many years you estimate you'll live in retirement, be as thoughtful as possible.
In other words, don't just wing it and input numbers that sound reasonable. Think about how your expenses will shift once you retire and whether you'll be spending more or less than you are now. Also, consider your health and any family history of health issues to get a rough estimate of how long you may spend in retirement.
Most calculators will give you an estimate of what you should aim to save by retirement age, as well as what you'll need to save each month to get there. Once you have a monthly saving goal in mind, it's time to figure out where that money is going to come from.
Taking a close look at your budget
If you're far behind on your savings, you might be blindsided by the amount you'll need to save each month. And if you're struggling just to make ends meet, you may think it's impossible to find that much cash in your budget.
However, it's possible you may have more money to spare than you think. Nearly 60% of Americans report living paycheck to paycheck, according to a survey from Charles Schwab, and yet the average survey participant also spends close to $500 per month on non-essential costs. So even if you feel you don't have a penny to spare for retirement, chances are there are at least some expenses you can cut back on.
Comb through your budget and first eliminate any truly unnecessary costs that are simply a waste of money. Next, cut back on the nice-to-have expenses, like dining out and going to the movies. Finally, see if there are ways you can lower your essential costs, such as making your home more energy efficient or using coupons to save money on groceries.
When budget cuts simply aren't enough
So you've gone through your budget with a fine-toothed comb, slashed every expense you can, and it's still not enough to reach your monthly saving goal. Now what?
At this point, you have a few options. First, you can take drastic measures to save more money -- think selling your car or moving to a more affordable neighborhood. These options can potentially help you save hundreds of dollars more per month, which may be enough to reach your goal.
Second, consider working a few years longer than you had anticipated. Holding off on retiring for even two or three years can help you save thousands more, making for a more comfortable retirement when you do finally leave your job. Just be realistic about how long you'll be able to work. For example, if you're currently battling health issues, it might not be realistic to assume you'll be able to work until you're 80.
Finally, you can learn to live on less in retirement. If you reach retirement age with less in savings than you'd hoped, it's not the end of the world -- but you'll have to be willing to make some sacrifices. You may not be able to travel the world or splurge on other retirement activities, but that doesn't mean you can't enjoy your senior years to the fullest.
If you're currently behind on your retirement planning, you're not doomed to suffer later in life. But the sooner you jump-start your savings, the better shot you'll have at enjoying the best retirement possible.