You Might Live to Be 100. Are you Ready?

There's an ever higher possibility you'll one day be able to blow out the candles on your 100th birthday cake. Recent research from the Pew Institute predicts the number of centenarians will quadruple in the next 30 years. Right now there are just over 100,000 Americans aged 100 or more. By 2054, Pew thinks that figure could be as high as 422,000.

If you've been watching Live to 100: Secrets of the Blue Zones on Netflix, you might have thought more about what type of old age you want, and what kinds of habits might get you there. But what about money? If you retire at 65 and live to be 100 or more, we're talking at least 35 years when you won't be working.

Nobody knows exactly how much they'll need to see them through their twilight years. A lot depends on where you live, your lifestyle, and other factors. Even so, some people might need more than $1 million stashed away to be able to live comfortably. That can be a tall order if you're living paycheck to paycheck right now.

What to do if you don't feel ready for retirement

A Gallup poll last year showed that only 43% of non-retired adults felt ready for retirement. If you're one of the 57% of Americans who don't feel they're on track, here are some steps you can take now to turn things around.

1. Work out what you might need

The first step is to put some numbers on paper around when you might retire and what income you want to have. It's true, there are a lot of unknowns, including health, family, and the wider economy. All the same, you can take the things you do know and guesstimate the rest. A retirement calculator can help you experiment with different numbers.

One rule of thumb is to calculate 80% of your current income and work from there. For example, if you earn $50,000 a year now, you might need your investments, Social Security, and other income streams to generate $40,000 a year once you retire. Let's say Social Security will pay $20,000 a year. You'd need to get $20,000 a year from other sources.

So, how much money might you need in your investment accounts to generate that $20,000? Without wanting to bamboozle you with figures, this is where another useful guideline comes in: The 4% rule. This says that your income in your first year of retirement income should be around 4% of your nest egg. The theory is that you'll then be able to increase your withdrawals as living costs increase, and your money would still last 30 years or more.

By that logic, you'd need $500,000 ($20,000 ÷ 0.04) to generate what you need in your first year. There are lots of ifs and buts attached to this, such as the balance of assets you hold in your portfolio. But it's useful to have a rough figure to work with. You might consider speaking to a financial advisor to make a more specific plan for your circumstances.

2. Increase the gap between what you earn and what you spend

Once you have an idea of where you want to be, the next step is figuring out how to get there. One side of that is what investment strategies you follow. The other is how much you're able to invest.

Various experts recommend investing about 15% of your income. If that doesn't feel possible right now, sit down with your budget and see how much you could put aside. The more you can cut your spending and/or increase your income, the more cash you'll have for your retirement fund.

• Cut unnecessary spending: Go through your recent bank statements and see if there are any areas you can cut back on, such as subscriptions you aren't using. This isn't about living on nothing but bread and water until you retire. It's about living more frugally so that you can have a more comfortable old age.
• Look for ways to increase your earnings: There's a limit to how much you can cut your spending. Look for ways to earn a little more. That might involve a side hustle, extra hours at work, or seeking a pay raise. Put that extra money straight into your retirement account.

3. Maximize your tax-advantaged contributions

Saving money on taxes can mean you have more for your old age. One option is a tax-deferred account such as a traditional IRA or a 401(k), which lets you reduce your tax bill today and pay tax on the money you withdraw later in life. Another is a tax-exempt account such as a Roth IRA where you pay taxes on the money you contribute now, but can withdraw it tax free further down the line.

If your company has a 401(k) plan, find out how it works. See if your employer will match your contributions, and if so, by how much. This can be an excellent way to boost your retirement savings. If that's not an option, understand how much the IRS will let you put in your retirement IRA each year and which type of account will suit you best.

Do what you can

When you look at the numbers, you may feel as if you have an impossible financial mountain to climb. This feeling can make us give up before we even start. Instead, see if you can break down your retirement goals into achievable steps. Even investing a small amount today can make a big difference.