The first key step to saving for retirement is to set a goal, but surprisingly few people have actually done that. Without a target to shoot for, it can be harder to stay motivated or to know if you're actually on track to being able to retire.
But not all age groups have been similarly lax in establishing a specific retirement savings goal. In fact, one demographic group has done much better than others -- and it's probably not the one you'd think.
Members of this generation are more likely to have a retirement savings goal
According to recent data from J.D. Power, 51% of millennials have set specific retirement savings goals, while just 44% of baby boomers or GenXers have done the same.
This is surprising considering that many members of the older generations are already in or nearing retirement, while even the oldest millennials are close to 30 years away from leaving the workforce.
These older workers have much less time left to save than their younger counterparts, but many haven't yet formulated a concrete plan for what their retirement readiness efforts need to accomplish.
How to set a retirement savings goal
If you don't have a goal yet, today is the day to correct that problem -- and doing so isn't difficult.
There's no one right way to set a retirement savings goal, but one of the easiest and most common approaches relies on figuring out your final salary in the years before you retire. To do that:
- Determine how many years you have until retirement. If you're 30 today and plan to retire at 65, you've got 35 years left.
- Assuming a 3% annual raise (a reasonable average to expect throughout your career), figure out what your salary will be when you retire. There are online calculators that make this easy, or you can do it manually. For example, if you're earning $40,000 at 30, you'd earn $41,200 in one year, $42,436 after two years, and so on.
Once you've determined what your final salary will be, multiply it by 10 to get an idea of how big your nest egg should be. With a $40,000 annual salary today, you could expect to earn $112,554.50 per year in 35 years, so you'd need around $1.13 million saved for retirement.
There are other approaches to setting a retirement savings goal that you can take as well, including figuring out how much income you need your investments to produce based on the percentage of your final salary you need to replace. Most of the commonly accepted methods of setting a goal will give you a similar number.
And once you have it, you can use an online calculator to figure out exactly how much to save each month, so you can ensure you're staying on target.
Make your retirement readiness plan today
No matter your age group, setting a goal for retirement savings is essential. Now you know how to do it, so take action today to establish your savings target. Then you can track your progress over time and hopefully be better able to build the nest egg you need to support you in your later years.